Has the tumbling rupee sent a more worrying message than we are prepared to hear or, at least, listen to? Is its collapse simply a reflection of our unsustainable current account deficit compounded by what happens in America and Syria? Or does it reflect a greater malaise?
I’m not an economist and what follows is not an analysis based on economic reasoning. My argument is impressionistic. But I don’t think it’s questionable for that reason.
I believe the falling rupee also reflects — in large or substantial measure — the world’s response to the present state of India. There are at least three issues that have caused dismay.
The first is the repeated paralysis of Parliament. Day after day the image we show the world is of howling, screaming, quarrelling MPs who persist with partisan and, even, petty protests despite the daunting challenges facing the country. They seem unconcerned about the key reforms that will determine India’s economic future. They care more for their personal prospects in Andhra, Supreme Court judgments about their eligibility, missing files and fixing the PM’s accountability and, of course, ventilating easily manufactured anger against Pakistan. In contrast, Nero only fiddled!
The second is what I call the Vodafone tax amendment. The government’s decision to overturn a Supreme Court judgment, upheld on review, sent a dismaying message to investors that India doesn’t have a well-defined and stable tax regime. Instead, it can be manipulated by government caprice. Even court verdicts can be cast aside. So beware before you invest in India — the government will change the rules of the game not just after play has started but even after the referee has blown the whistle and the match is over! Quite frankly, who wants to invest in such a country?
The third, I admit, is controversial. It can be read in many ways. I am talking of the decision to push through the food security bill at a time when concern about India’s deficit has peaked and when everyone knows the finance minister’s commitment to 4.8% can only be honoured by savage and, possibly, damaging expenditure cuts.
The world accepts that, as a democracy, India has a moral commitment to feed its poor but that’s not the point at issue. It’s a question of timing and the message that sends out.
Done in 2007, before the international economic crisis, and the food security Bill would have been applauded. Postponed till after economic recovery, it might be seen as a valid attempt to tackle nutrition and health and thus promote productivity. In other words, a long term investment in the economy. But at the height of a crisis it looks populist and suggests the government can’t handle the downturn.
So what’s the wider point I’m driving at? Let me put it simply. No longer does the world view India as a shining beacon, leave aside a potential superpower of the near future. It now sees India with disappointment verging, increasingly, on disillusionment.
Is this a loss of confidence? It may well be. Let’s not deny that possibility. But is it irreversible? That doesn’t necessarily follow. It depends on what we do.
The rupee is not sounding a death knell. It is, however, a loud, if not shattering, wake-up call.
At issue are not just the economy but our government, Parliament and democracy. It’s the way we function as a country. India, itself, is in the spotlight and what the world sees it doesn’t really like.
Views expressed by the author are personal