The Indian rupee has dropped nearly 23% from its August 2011
peak against the dollar. This sharp depreciation is mainly because of India's
large current account deficit (about 4%* of GDP in 2011-12) that capital flows have not been
sufficient to cover. A look at the concept of CAD and how it is pressuring the
rupee:
WHAT IS CURRENT ACCOUNT DEFICIT?
A country's current account consists of its visible (exports and imports of goods) and invisible trade - income and expenditure from export and import of services such as banking and insurance, and profits earned on investments and remittances by workers.
The current account balance is the difference between the export and import of the two trades. If imports are more than exports then the current account is in deficit. This deficit is usually measured as a percentage of GDP.
WHAT IS INDIA'S CURRENT ACCOUNT SITUATION?
India runs a large trade deficit; that is, its imports exceed exports. Some of this trade deficit is covered by the surplus on the invisibles side -- largely IT exports and remittances by Indian workers overseas --leaving India with a net deficit on the current account. This deficit is expected to have widened to 4% of GDP in 2011-12 from 2.7% in the year before.
WHAT IS CURRENT ACCOUNT DEFICIT?
A country's current account consists of its visible (exports and imports of goods) and invisible trade - income and expenditure from export and import of services such as banking and insurance, and profits earned on investments and remittances by workers.
The current account balance is the difference between the export and import of the two trades. If imports are more than exports then the current account is in deficit. This deficit is usually measured as a percentage of GDP.
WHAT IS INDIA'S CURRENT ACCOUNT SITUATION?
India runs a large trade deficit; that is, its imports exceed exports. Some of this trade deficit is covered by the surplus on the invisibles side -- largely IT exports and remittances by Indian workers overseas --leaving India with a net deficit on the current account. This deficit is expected to have widened to 4% of GDP in 2011-12 from 2.7% in the year before.
I put a simple question before Finance Minister and Prime
Minister what they have done to deal with Fiscal Crisis .The immediate solution visible to common men is to reduce imports which are avoidable and increase exports of such goods which are produced surplus in India.
As appears to common men , government has done nothing to reduce imports and increase exports when they feel that current account deficit and trade deficit is higher than acceptable ratio ;
I as a common man think that if imports are reduced to bare minimum there is no doubt that all fiscal problems visible in the shape of current account deficit or trade deficit or falling rupee value will be solved .
I submit here under some cases of imports which can be reduced to bare minimum if government has a will to control the current fiscal problems.
As appears to common men , government has done nothing to reduce imports and increase exports when they feel that current account deficit and trade deficit is higher than acceptable ratio ;
I as a common man think that if imports are reduced to bare minimum there is no doubt that all fiscal problems visible in the shape of current account deficit or trade deficit or falling rupee value will be solved .
I submit here under some cases of imports which can be reduced to bare minimum if government has a will to control the current fiscal problems.
GOI should ban or restrict import of Gold. There is no necessity of importing gold. Is gold import helpful
for poor men or for increase in GDP growth?
Why coal and coal related products are allowed to be imported
when India has huge stock of coal hidden in mines. Why India is unable to use
coal resources available free in India and why not adequate money is spent for
production of other coal products which are now being imported from other countries.
As of now at least coal related products worth Rs.25000 crores are imported for
various power projects.
Why readymade garments and cloth are being allowed to be
imported when domestic industries are capacited enough to produce all textile
products and have enough capacity to export the same. Why FDI is allowed in
this sector which indirectly affects adversely the domestic industries are
farmers who produce raw material needed for production of cloth and ready made
garments.
Why medicine and drugs are imported when domestic industries
have capacity to manufacture medicine of all types. And if some drugs and
medicine are not manufacture in Indian soil, why Indian government do not make
efforts to develop skill and technology in India to manufacture such medicines.
which will help in boosting the morale of Indian manufacturers and boost the
future of domestic industries and employment opportunities.
Why papers for currency notes are imported from Sweden and
why not Indian industries can produce required papers on Indian soil only. This
will help to reduce the supply of fake notes in the market.
Why import bill on fuel is
increasing year after year. Why not government comes out with policy on use of fuel. Government says that fiscal deficit is increasing
due to increased loan on fuel subsidy. But unfortunately government has not
taken any step to reduce expenses on fuel subsidy. Number of car has been
increasing in India ten or twenty times faster than the speed of rise in population.
And especially after unprecedented rise in petrol prices people of India are
now crazy to buy diesel car which are mostly used by rich people. Government can reduce subsidy burden by transferring this burden to rich .
It is rich people who can afford purchase of
costly diesel car and it is they who save and who enjoy diesel subsidy. Government
can save at least Rs.25000 crores fuel subsidy per year just by banning
manufacture of diesel car and putting restriction on use of diesel car which
not only affects the economy of the country but pollutes the environment,
In India , it is pity that there is no more cases of green revolution or Industrial revolution but there is case of CAR REVOLUTION.
In India , it is pity that there is no more cases of green revolution or Industrial revolution but there is case of CAR REVOLUTION.
Why government is spending huge
amount on import of arms and ammunition? Our government can spend Indian rupees
to manufacture arms and ammunition in India itself and reduce current account
deficit to a great extent.
Indian politicians are spending huge money on foreign trip and serving no purpose for the country. There are many foreign trips which can be avoided.
It is unfortunate that Indian students are going abroad for higher studies and Indian educated and skilled labour prefer getting job in foreign countries.Economy of USA, UK and other countries are growing stronger with the help of Indian talent working there and unfortunately India is facing economic, social and administrative crisis.
Indian politicians are spending huge money on foreign trip and serving no purpose for the country. There are many foreign trips which can be avoided.
It is unfortunate that Indian students are going abroad for higher studies and Indian educated and skilled labour prefer getting job in foreign countries.Economy of USA, UK and other countries are growing stronger with the help of Indian talent working there and unfortunately India is facing economic, social and administrative crisis.
In this ways there are number of
other commodities and industrial goods which can be put under restricted import
domain. Before 1991, government had hundreds of items put under restricted
lists of items for imports and in which case government did not like to permit import. But after 1991 ,in the name of reformation, government started giving total freedom to
importers which in turn not only created current account deficit and caused fall in value of rupee but also damaged the future of domestic industries and which
resulted in lesser GDP growth and lesser employment opportunities.
Bad debts in
banks are increasing not because rate of interest in Indian banks is higher but
the bitter truth is that domestic industries are not in a position to survive
due to overflow of imported goods in Indian market.
Similarly export of only those products and commodities which are in surplus production in India should be permitted .
Similarly export of only those products and commodities which are in surplus production in India should be permitted .
It is in India only that farmers
produce organic food products and export it whereas Indians are served food
produced with chemicals and pesticides.
It is India which has to depend
solely on Foreign Direct Investment or on the fund flow pouring in share market
through Foreign Financial Institutes. Indian government do not promote saving tendency
or investment in Indian industries but like to link future of India with FDI in
retail .On the one hand Indian leaders claim that India is number one and will
lead the world in coming years and on the other same brand of leaders do not
hesitate in saying that FDI and FII are unavoidable and essential to meet
current fiscal crisis.
Indian government has not even tried
during last two decades to make optimum use of natural resources available in
India as God given gifts and thought it better to allow free import and spoil
the future of domestic industries. They are very much eager to spoil the future
of retail businessmen of India by allowing multinationals to increase their
retail network in India.
Common men can suggest the ways and means to reduce trade deficit, current account deficit and to stop further depreciation in rupee value. Common men can tell how to improve domestic production, how to increase Gross domestic product and how to reduce price rise and inflation. It is pity that great economist shed crocodile tears but fail to contain the fiscal crisis.
It is unfortunate that the policy of liberlisation, privatization and globalisation (LPG) adopted in the year 1991 in the name of reformation has proved more as a curse than a boon for common men and for the country. There is no doubt that a few lac of rich people have immensely benefitted from the policy of LPG and it is they who have become billionaire in two decades and it is they who have bought politicians and made them billionaire by funding them in the name of election.
Policy of reformation which are treated as Panacea for all evils by Indian leaders have proved to be poison for 100 crore people of India. Freedom given to real estate builders , car manufacturers and bankers have benefitted only rich class because poor and middle class persons cannot dream of buying a house or a car . Bank can give loan to buy a car or a home but to maintain a car or a flat is not easy for poor and middle class.
And much more --------------------------
Reserve Bank deputy governor KC Chakrabarty today said that educating common man about the speculative nature of gold investments is the key to bring down the high import of gold which is straining current account and pulling down the rupee.
"What will bring down gold imports is creating awareness in the society that gold is not a proper investment for the poor. It is a speculative investment. We need to change our culture," he told reporters on the sidelines of a CII-organized banking technology meet here.
He, however, did not give a direct answer when asked about reports that the RBI was contemplating a ban on the sale of gold coins by banks. When asked if such a move will bring down gold imports, he said, "I don't think so."
Gold, seen by many as a safe haven for parking money given the present gloom in the financial markets, is being sought-after by all, thereby putting stress on the current account deficit and the value of the rupee as bulk of the demand for the metal is met through imports.
Gold imports stood at 969 tonne worth USD 61.5 billion in FY12, according to the World Gold Council.
According to reports, the RBI is planning a reversal of its earlier stance taken when the rupee was relatively firm and may ban sale of gold coins by banks to arrest fall in the value of the currency (6 percent since January and 30 percent since last August) to keep a tab over the current account deficit, which is likely to touch four percent of GDP in FY12.
Almost all the major banks are into selling of certified bullion to cash in on the growing demand.
Central Bank of India's chairman and managing director M V Tanksale said banks sell gold coins to complete their product bouquets and also because there is a latent demand for the commodity from the people who see it as an investment.
Meanwhile, Chakrabarty parried questions on the weak monsoon so far and its possible impact on factors like inflation, interest rate and the rupee.
On all the forward looking questions on the factors like inflation and growth which go into the making of the monetary policy, Chakrabarty--who had drawn flaks from the market and industry for sending out contrasting signals from that of his colleague Subir Gokarn who is incharge of monetary policy--asked the media to decide their editorial stance about asking him on such issues.
Chakrabarty said he "does not want to confuse" anyone and the media should first decide whether to ask him questions on issues which do not directly come under his purview.
When the media persisted for his comment on interest rates, he repeated the central bank's stated objective that elevated interest rates would come down only when inflation is brought under control.
http://www.indianexpress.com/news/investing-in-gold-is-a-peril-for-india-investors-rbi-to-public/967951/
New FM Needs to Rationalize Diesel Prices, Not Rig Car Taxes
Ruling coalition must take tough calls: Sonia Gandhi holds the exchange rate in her hands
Mind the Rupee, Sonia
The rupee is on everyone’s mind. But is it on the mind of the one person who can make a difference , Sonia Gandhi? Make no mistake, lending muscle to the sagging rupee is a task that can be addressed only by politics. Absent political will, technical fixes and economic announcements are bound to fail.
The value of the rupee is buffeted by two strong currents : loss of investor confidence in the Indian economy, leading to capital flight; and domestic demand for goods and services far in excess of domestic production, leading to imports far in excess of exports, manifesting as a huge current account deficit. Unless investor confidence is restored and excess demand reined in, the rupee will continue to weaken. Investor confidence is not boosted by brave policy announcements by the government .
Investors are impressed by action, rather than words. And the kind of action that is required to restore confidence calls for a lot of political courage. Action is required on two fronts. One is policy and implementation to loosen, if not to remove, the binding constraints on the economy. The other is concerted action to rein in excess demand. Allowing greater freedom for short-term capital flows does not fall into either category of imperative action. India today adds twice as much power generation capacity as it used to five years ago.
Yet, parts of the country suffer steep power cuts. Shortage of coal and gas is a key factor. Policy deficiency that prevents regulators from allowing utilities to pass on the higher cost of imported coal and gas in power tariffs prevents imports from making good this deficit. Strong political action is needed to remove India’s fuel shortage. Coal is a state monopoly, private operators can mine this abundant mineral only for captive uses. This is a source of profiteering opportunities for those who can corner mining leases. The entire political class cutting across parties wants to continue with this arrangement.
If the country’s interests are to be held uppermost, the Coal Mines Nationalisation Act of 1973 must be scrapped, Coal India broken up into a number of competing enterprises , and private companies allowed into mining, cleaning (beneficiation is jargon for removing stuff that does not burn, like rock and shale, that comes mixed up with mined coal) and selling coal. Only if political resolve of the highest order is mobilised can these changes be made. The chairperson of the ruling coalition must bestir herself to get this done.
Kick-starting stalled investment has to begin with the government. Large investment projects typically require avariety of government clearances . These, today, are caught up in a maze of administrative procedures that babus ensure will keep them trapped at least till they retire or move on to another ministry. There is huge inertia in the system, as it is. The likelihood of inviting a corruption charge in the wake of some wild estimate by a glory-seeking Comptroller and Auditor General on the rampage has turned our babus into timid mice frozen into terrified inaction . They need political backing, if they are again to act like men and clear pending files.
The Delhi-Mumbai Industrial Corridor, Cairn’s long-pending proposal to raise oil production to 3,00,000 barrels a day in Rajasthan and BP-boosted Reliance Industries’ proposals to invest in the KG Basin to start producing gas from satellite fields are projects delays in which are totally inexcusable.
Allowing foreigners to invest in modern retail is now a symbol of the government’s commitment to reforms. This is a simple enough decision , provided the UPA is willing to stare down irrational protest from populist politicians like Mamata Banerjee. These are but some examples of reform that, onceinitiated , will boost economic growth and restore investor confidence. The steps that are required to curb excess demand in the economy are tougher.
A huge fiscal deficit that is used, for the most part, to subsidise consumption is the principal cause of excess demand. At a time of stagnant investment, the point is not so much to slash the fiscal deficit as to change the composition of its use. Fuel and fertiliser subsidies are two items of wasteful expenditure that jack up the fiscal deficit. The current fear of a global recession has sent commodity prices to recent lows. This is the best time to decontrol diesel, kerosene, cooking gas and fertiliser prices and allow independent marketing of these products so that competition would pare off layers of cost. The resulting budgetary saving can be ploughed into investment. This calls for political courage , not yet another report by Kirit Parikh. Whether the Prime Minister holds the finance ministry or not is largely a matter of detail. It is the political resolve of the ruling coalition to take tough calls that is primarily at stake.
Sonia Gandhi , in other words, holds the exchange rate in her hands. We need policy to remove constraints on the economy and to curb excess demand But addressing issues like power and investment needs strong political resolve The ruling coalition must take tough calls: Sonia holds the exchange rate in her hands
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