This could be temporary and let it be…….. That’s the expectation which Indians keep when their currency weakens. As Mr Paul Krugman in his latest blog “Ruppee Panic” describes, let us also generalize that currency weakening phenomena is there in almost all emerging economies. He invites our attention to the Brazilian economy where the fluctuations are more severe than India. The Brazilian inflation rate is marked as 6.7% which it difficult for the government to execute the development plans .
It will be interesting to know who lost how much on this rupee dollar war in India. Mr Mukesh Ambani who is the owner of Reliance Industries Ltd. (RIL) the biggest refinery complex has lost $5.6 billion of his wealth since May 1 and his younger brother Mr Anil Ambani lost $1.3 billion. The second biggest loser is Mr Dilip Shanghvi, founder of Sun Pharmaceutical Industries Ltd and his loss is $2billion! Mr Kumar Mangalam Birla had a loss of 950 million; he is the owner of Aditya Birla Group.
The current situation in India is defined as Stagflation (a mixture of stagnation and Inflation) The RBI On Tuesday night announced that it would purchase Rs80bn of long-dated government bonds and execute further measures to lessen the pressures on Indian banks, whose forecasts were badly affected by the measures introduced to protect the rupee.
The Indian government doesn’t see any other way to come out of this crisis than inviting maximum foreign capital to the country. The production decreased to 10.4% compared to the last May. The ideal strategy is to increase the budget deficit to tackle this situation as Mr Pranab Mukherji did in 2008 but the present finance minister is unable to do since the inflation rate is at a high of 5.79%. RBI can’t reduce the interest rate because it will affect the foreign capital inflow. Another threat is the fear of an exodus in foreign investment in India since the majority of the foreign fund is invested as short term funds. If the panic of the rupee goes high the investors may withdraw them.
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