Wednesday, August 21, 2013

Rupee @ 65 And Government Clueless - Stop Gold Imports - save Rupee

Rupee @ 65
And Government Clueless

The Question doing the rounds in the market is – which will reach Rs.100 Mark Faster – Rupee vs Dollar, Onion per KG, Or, petrol per litre?

The question is not of my invention. I have been hearing it for quite some time. The other day, Actor, Kabir Bedi was wondering how, Rupee Value per Dollar was, keeping pace, exactly with his Age, in years. And, he has been proved wrong very swiftly in a matter of days. It has overtaken his age, my age and many others’ age. Government stays absolutely clueless – except telling all of us – not to Panic. This shows that Government is panicking – and it doesn’t want company.

And, Government has many other headaches – apart from Rupee value. Many files are missing from Coal Ministry. Files do go missing. They do get legs. After all, they don’t want to embarrass their authors. So, they go missing. Very faithful. Not always. But, some times.

The Government’s much touted Food security Bill is in some trouble. Everybody wants it – but nobody wants it as it is. I wonder from where the money and the food grains will come in say, the next 5 years. Don’t we have a five year plan, backed by our planning commission? The planning commission and the PM should be telling us how the bill will be funded in the next five years. Else, UPA II will deplete all food grain reserves in the Election year, add about 50,000 crores of rupees to the Budget deficit – and leave it to the next government to bridge these two deficits. No Bill of this nature should be passed without knowing its implications for the next five years. 

Let us come back to Rs@65. The rupee is dangerously at Rs.65 per Dollar. It is said, it was Rupee One per Dollar in 1948. In 66 years, Rupee has weakened to almost Rs.66 per dollar. Perhaps, by the time, you read it, it may have reached it, confirming Kabir Bedi’s  premise that Rupee keeps up with his age.

It is bound to be like this – unless, and until, we focus on Production and construction of value – from every rupee that we collect from  the tax payers. Currently, both central and state governments are vying with one another in collecting – and distributing the tax and non-tax revenues in some way, which they can call social justice. 

No Government in India really bothers much about production and distribution. Every Government bothers about collection and distribution. It is a monumental economic tragedy that goes on in India.

I don’t think, even one NET ADDITIONAL JOB has been created in any State (barring a few exceptions like Gujarat) taking the government and non-government sectors taken together. And, by JOBS, I mean productive jobs. Fortunately, we don’t have official unemployment statistics in India – like they have in the US. US declares and examines its unemployment statistics every week! And, that US statistic, either elates or depresses our Indian stock markets, for some strange reason, on a weekly basis. We never bother to demand from our Government , similar statistics – possibly for the reason that we will be permanently depressed, once we have them. But, we must demand – because, after darkness only comes the light.

We have, as an alternative, the IIP statistics. They are obviously not much reliable. But, they are the only ones we have. We don’t make the flimsiest attempt to make them better, more reliable. We do rely on them, no matter how unreliable they are.

We rely on them – and get depressed – because, even the unreliable statistics, are not willing to cheer us up. They are depressing. They are going down. And, some of us do find time, to get depressed. The RBI does. The Government does not. Others don’t know what to do.

RBI goes on increasing the interest rates whenever Inflation goes up. It is its mandate. It is so ordained in the science and Art of Economics. RBI has forgotten the Art part but only remembers the Science Part. 

In any field, which is both an Art and a science, the science does not work unless, it is used as an Art. RBI knows the science – not the Art. That’s my view. Government knows neither. That’s the whole trouble. That’s again, my view. If you seek proof, I can’t give one – except that, the Inflation never goes down, despite 2 years of its medicine from RBI; the IIP numbers go down always, despite all inaction by Government; and the rupee goes down against dollar – for reasons best (un)known to our Government and RBI. 

If I were the Government and RBI, I would have cut down Gold Imports to 50% when Rupee went up down from Rs.54 to Rs.58. I am almost definite that Rupee would not have depreciated against dollar if this was done. A stitch in time would have saved nine – or 11 to be exact (65-54 = 11). That was not done then. That is not done now. Government and RBI have other thoughts. They are better economists – but with no clues, no remedies. 

They say – don’t panic. Because, what is the use? No use panicking. People say, Dollar may go up to Rs.70. Why? It is going up. It is there for all of us to see. No point in asking why. Suppose, Government curbs Gold, luxury  cars, high cost TVs and other non-essential imports by 50% (instead of merely imposing import duties on them) what will happen? Need for dollar comes down immediately and drastically. If there is no need, who will buy dollars at such high cost? That brings down dollar value against rupee. But, will Government do it? I don’t know.

When Inflation is up, when IIP is down and when Rupee is depreciating against dollar – RBI is fighting with its limited weaponry. But, Government is watching. To my mind, it did not lift even its little finger to fight food Inflation. Do any of you remember a single meeting at the level of secretaries or Ministers being conducted involving all states – by the Union food and agri Ministries – to tackle food Inflation? I don’t remember. It was always the RBI that was crying hoarse on Inflation, when, in fact, the Union Ministries of food and agri must be doing a lot more to contain food Inflation.

Government at Centre is bent on NREGA – knowing fully well that almost no work is being done and no assets are being created under the scheme – even though payments are made. This is being justified – by many of us on many grounds. Like, what if poor people are given money? This is utter insanity. You can plan; you can get solid asset creation work done. Then, you can make payment. If there are no assets against these payments, it shows we are poor planners. Creating Assets needs planning before execution. No one can be against NREGA if, it results in asset creation and real Jobs. My strong feeling is – no man should be paid for idleness. It is dangerous. It is unethical. A man or woman accustomed to payments for idleness will be reluctant to seek jobs where real work is involved. Man/woman is always slave to Habits. And, Idleness for which one gets paid also – is a dangerous Habit. Food security Bill is also similar. I would say, create work – and pay the persons. India is one country, where huge work awaits to be done. We only need to plan first. If we can’t, it is pure, poverty of imagination.

If NREGA and Food security Bill and similar schemes in states are really planned with solid asset creation as the quid Pro quo, there will be no poor within 5 years. All would become at least Middle class and India will be full of Great, valuable, Productive assets. Otherwise, we will always have a growing army of people seeking free food, free payments – not work. 

People can’t be blamed for this. People will be willing to work. Any work will be self satisfying, if adequately compensated. It is unfortunate that Governments do not want to plan.

Coming back to Rs.65 per Dollar, Are we really waiting for Rupee to reach the 100 mark, get tired in the process and stop there on itself? Just stop unproductive imports or reduce them to 50%. That is all that is needed. No liquidity squeeze is needed. No High Interest rates is needed.

To my mind, this is simple economics – or, the Art of economics. It might hurt the Gold and Jewellery Industry. But, none else.

I admire our PM and FM as solid Economists. So is Raghuram Rajan, the RBI Governor incumbent. They must put pressure on respective Ministries – and get things done. Sir, stand by the Rupee. Stand by Growth. Stand by RBI in containing Food Inflation. The economy will look up as suddenly as it has nosedived.

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