There is a need to improve the fundamentals if India is to control USD.
This is a write up by Mr. Vikas Vikram Singh featured in September Issue of magazine Steel 360. He talks about fundamentals at the basic level needs correction and only then, INR will stabilize.
The rate of fall of INR was faster than the times before. August saw the worst fall when it hit to the level of INR 68.85 per USD on 28 August, 2013. But such levels, will keep coming until we address the fundamental problem. The absolute exchange rate is only a number derived out of various factors and noise. Levels are not always the correct reflection of present or future of any market.
While it seems that voluntary service tax disclosure is a good thing and it brought more money, what people fail to notice were two bigger and much important takeaways; the two point approach to destroy any fundamentally economy. One, destroy the business confidence so that capital expenditure cycle comes to a halt; a trademark for last 3 years when projects are put on hold with indefinite pending clearances. Interpretation of transfer pricing norms as per the whims and fancies of finance ministry to suit the situation has been a highlighter. To quote an example, Vodafone vs Income tax department when the former won the case in the highest court. Then the government goes ahead and retrospectively amends the law to make Vodafone pay tax.
The second is the election effect; spending money on the name of social welfare like food security bill (FSB). One should realize that FSB was thought of the time when economy was growing at a pace of 8-9% pa and had a basic assumption that it will continue to grow at the same pace or even better. Now that the growth has tapered off; we do not have a contingency plan but the government still wants to take up spending plans which we cannot finance.
Global macroeconomic head wind is yet another favorite punching bag for administration. Comfortably comparing ourselves with nation nations such as Brazil, Indonesia, South Africa and other emerging markets while the rupee depreciate. Without realizing or being completely oblivious to the fact that these nations are much more globalized than India and therefore impact of recession will be much harder on them; also none of them have a CAD comparable to India.
Enough blame has been put on Gold and Oil for CAD but what must be considered that despite holding one of the largest coal reserves in the world, we will end up importing coal worth USD 20 billion in current fiscal year. From being Iron ore exporting nation, we have become a net importer. These imports can reverse easily by de-bottle necking the system.
In a globalized world, we are all entwined. Globalization has created long calm and growth phases but the shocks will be much severe. Add to that our own incompetence on policy front, the pessimism is not unwarranted.