Falling rupee, rising tensions
The rupee is plumbing new depths. Factories are producing less, exports are not growing, investment is down to a trickle, and companies are offering fewer jobs, while cost of living continues to remain high.india Updated: Jul 01, 2013 02:29 IST
The rupee is plumbing new depths. Factories are producing less, exports are not growing, investment is down to a trickle, and companies are offering fewer jobs, while cost of living continues to remain high.
The government, facing an election in less than a year's time, is fast running out of choices to nurse the economy out a decade-low growth. The time for some hard choices has come.
Towards the end of his budget address on February 28, finance minister P Chidambaram underscored the importance of making right choices, signalling a break from conventional wisdom where election years are usually looked forward to by millions for sops and concessions.
If easing foreign direct investment (FDI) caps will create jobs and spur investment, then it isn't good judgment to dither any longer. After all, a good job is the best form of inclusion, and also politically correct.
The decision to double natural gas prices from April 1 next year perhaps demonstrates the government's intent to walk the talk on tough reform measures even if the move may push up the price one pays for everything from food items to public transport.
But at a time when dollars are flying away in droves, it is critical to lure precious capital through appropriate, and urgent, measures. At the very least, the decision to raise gas prices will help turnaround sentiments and attract foreign investors in the energy sector.
The signs were already visible, less than 24 hours after the government bit the bullet on the politically contentious move. Expectedly, the stock markets have given a cheering welcome and the rupee, which had slid 13% since May, has also gained a bit.
Manufacturing sector growth must underpin resilient national income growth. Industrial expansion is driven by investment, which, among other things, is also a function of how much people save. Indians traditionally save healthy amounts in bank deposits, a key driver of prosperity. Gross domestic saving as a proportion to GDP, the main gauge of disposable income, has fallen from 36.8 % in 2007-08 to 30.8% in 2011-12.
A large part of this decline has been due to the fall in financial savings of households which have declined from 11.6 % of GDP to 8 % of GDP during the five-year period. Households financial savings are determined by two broad variables — income and returns. In times of slowdown both of these move in slower lane. Growth or rise in earnings is, thus, a necessary condition for both investment and savings. A spirited drive to push growth is the all important first step. Jobs and ability to spend will follow, almost as compulsory attendant benefits.