The wobbly rupee has been on the list of everyone’s worries for about a few months now, particularly after the closing of the first quarter of the current fiscal. The Indian currency, unstable and ever-weakening since beginning of April this year, nonetheless, is responding to the aftermath of the US Federal Reserve’s skimming of its cheap credit lending policy. With the rupee breaching the 60 mark against the US dollar once again in about a week’s time, the volatility of the currency, along with the deepening crisis in which the currencies of the emerging economies are finding themselves in, points towards the larger malaise ailing the global capital market. However, the fact that the rupee suffered more than the Turkish lira and the Brazilian real, indicates that the currency value depreciation is not a sudden and isolated incident. It is, actually, the outcome of protracted policy paralysis of the current government, which had been accepting easy short-term loans from the US Federal Reserve and piling up the debt trap, which has reached gargantuan proportions by now. The unfortunate truth is that the rupee is the only Asian currency that has shown such a quick depreciation to be ranked the top five worst-performing ones, behind the South African rand and the Brazilian real, having weakened by 10 per cent since the beginning of April this year. Clearly, the official explanation that the growing clout of rupee is in sync with the current account deficit in all the emerging market economies does not hold water when compared to China or Japan, or even Singapore, which had suffered a CAD of almost 20 per cent of GDP.
The deeper problem that needs to be unearthed is that the Indian economy is buried under a tremendously high external debt, which has ballooned up to four times the figures that were valid a decade back. For example, it was about USD 100 billion in 2004, yet in March 2013, the sum has assumed the enormous proportions standing at USD 390 billion. Of this, short-term yearly loans that could send shock waves through the credit-hungry Indian business sector if withdrawn, contribute a mammoth USD 172 billion, thus pointing towards the extreme vulnerability of the Indian fiscal structure to the US Federal Reserve and its global monetary policies. It must be remembered that easy credit was practiced by the US after the 2008 Wall Street crash, so as to encourage liquid money and prop up the sagging American economy. However, as the cheap money inflow dries up, sections of the businesses from developing economies, including those from the Indian sector, that were getting dependent on the low interest loans, are bound to face the brunt. With the rupee dipping, import levels rising and export going down, it’s a fiscal quagmire that is likely to worsen in the months to come. However, the UPA government seems to have dispensed fiscal correction as a possible poll plank and is instead busy shoving the blame on the flimsy CAD. Evidently, UPA neither has the political determination, nor the economic vision, to bring India out of the vicious downward spiral that it’s hurtling to.