The fiscal woes begotten by the Indian rupee’s continuing downward spiral, and its repeatedly falling below the 60 mark against the US dollar have been cause for enough concern. So much so that two of the most prominent cabinet ministers within the UPA government, the finance minister P Chidambaram and the commerce minister Anand Sharma have had to make urgent visits to the US to soothe investor worries and quell misgivings in the wake of the rupee’s slipping from Rs 55 to a dollar to past Rs 61 in a span of few weeks, ever since the outgoing chief of the US Federal Reserve Ben Bernanke announced that US is withdrawing the short-term loan provision and substantially reducing its bond purchase programme that was at the heart of the easy money inflow into the emerging economic markets and their high growth rates in the last couple of years. However, this sudden decision by the US Fed to wind back its monthly bond schemes should be read in the context of India’s flip-flops over the FDI, with the political and corporate spectra splintered over the extent of FDI permissible within various sectors of the Indian industry. Clearly, in the last couple of years since the 2008 global fiscal crisis, the US, in order to prop up its plummeting economy, has been pumping in hot money not only within its own sectors, but also, across the markets, particularly in developing economies such as Brazil, Turkey, Argentina as well as in the Asian countries barring China, especially India. The liquidity upsurge in India that pushed up the GDP and the growth rate in 2009-2011 period, was, therefore, a wider consequence of the fiscal operations within the US, although, it appears that the US is now arm-twisting India to hike its FDI and FII limits in order to prevent a free fall of the rupee against the dollar.
It is obvious that the US investors are unhappy with several factors prevalent in India, such as patent regimes, which have not yet been completely sold out to the US corporate lobbies, as well as FDI caps in sectors such as defence, aviation, telecom, space exploration and even single brand retail. Yet, the finance minister P Chidambaram had already given enough tax relief to the foreign investors by relaxing the stringent general anti-avoidance rules that were coming down on the tax defaulters. Clearly, the investors, particularly the American corporate houses, want more, and has been pressuring its government to relax the crucial FDI norms, particularly in retail, under the garb of helping India with diffusing the crisis of the rupee. Because the dollar is the world’s only accepted reserve currency, India has been busy soothing the flared up nerves of USA that has categorically asked the visiting finance minister and commerce minister to cut down local procurement norms for FDI in retail and raise the ceiling on FDI in defence to 74 per cent. Despite the minister duo’s asking the US pressure groups to continue with the stimulus dollar policy, it must be noted that the latest visit comes in the wake of over 250 of US senators and business representatives writing to President Barack Obama and Secretary of State John Kerry over ‘discriminatory’ policies, clearly an indication that the liquidity woes and rupee’s downslide are not unrelated developments.