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International Issues/ Economy/ Foreign Affairs, National Issues/ Economy/ Politics

There is no economic meltdown in India because of US dollar !

Rupee Vs US Dollar

‘India is supposed to be one of the great BRIC emerging market nations that offers massive growth and opportunity for investors. Some 1.2 billion people live in India, and its economic expansion historically has been a rival to the great expansion of China. It turns out that India’s current economic policies are not that great for investors. In fact, its rupee currency has gone to hell against the U.S. dollar, and its stock market is cratering. The exchange traded funds (ETFs) and funds tracking the Indian market are wiping out fortunes, as things have gone from bad to worse. Now the country has named Raghuram Rajan as the next governor of India’s central bank at a time when the rupee is nearing a new low. What we are curious about is whether Raghuram Rajan can save India’s economy, stock market and status as a great emerging market; keep the rupee from cratering further; and most importantly cap inflation in a manner that will still allow India’s GDP growth to pick up again.'( Read more: Can Raghuram Rajan Save India from an Economic Meltdown? – 24/7 Wall St.)

There is no economic meltdown in India 🙂 – yes, Indian rupee getting weaker will raise inflation since we are fuel dependent on external sources. But, that’s about it. We can counter the inflation by raising our income levels. What Raghuram Rajan should do is the following – keeping long term interests of the country in his mind.

1. Firstly, there is no need to press the panic button – the US dollar getting stronger vis-a-vis Indian rupee will not affect every aspect of our economy except the inflation index. Exports will eventually go up with rupee getting weaker – that is a good development since it will also promote more FDI (Foreign Direct Investment) interests for more domains/ industries in our country. Government-run projects in education can be involved with foreign countries’ participation, though this is a new area which can be considered to aid global interests. And mind you, US dollar is stronger only due to current speculative forces and not on the strength of the US economy which is in recession. So, the foreign companies who have exited India due to ‘false alarm’ will come back right here when they see our GDP growth rates going up.

2. India continues to be the ‘preferred’ destination among the emerging markets (especially among the BRIC countries), for prodding the global economy’s growth for variety of reasons such as – the size of our consumer population, lower labor work-rates since India is predominantly rural area populated, better under-graduate education standards and communication in terms of English speaking abilities ( when compared to China), availability of superior managerial talent, encouragement of free enterprise, democratic set-up of government etc. As the RBI Governor, Rajan should clearly focus on ‘GDP growth alone’, since that will raise the per capita income levels in the long run, boost the domestic job opportunities significantly, develop new untapped rural markets within India and will put down the bank lending rates to facilitate better growth.

3. Raghuram Rajan should ensure that Reserve Bank of India is well independent of political maneuvering to meet ‘popular’ poll measures, since 2014 being the election year. I know, this is easily said than actually done. This is the only area which will seem challenging to Rajan, due to his lack of political experience, to ensure that the monetary policy is not disturbed. For example, Food security Bill – if passed, it will only raise the current account deficit and along with increased government expenditure for this year – it will lead to printing of more Indian currency notes. Rupee devaluation will not help in boosting the Indian economy. Rajan should safeguard the GDP growth rate (by all means) and the Indian economy by not allowing popular poll measures to take effect.

Rest will fall through rightly in their places on their own, if these steps are taken on time.

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About Raman Ramamurthy

I am a Management consultant, an avid reader, play Lawn tennis in my leisure time and love Music. Presently, I am settled in India along with my wife and my son.

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