Indian Rupee: The Real Crisis

 The long queue for Dollar at the Foreign exchange counter in India reminds the ‘bank run’ narrated in Arthur Hailey’s Novel, ‘The money changers’. In the novel the Bank was saved by a man when he came forward to deposit his meagre savings while all others were in queue to withdraw money The mood of the aggressive crowd was suddenly changed positively in favour of it and the crisis blew over.

Actually the similarity ends just at the sentiment of investors, because a bank can bust if all its customers demand their deposits on one bad morning, but not a nation like India.

India’s two major import items are Crude oil and Gold.  As a result of India’s love for gold, there is an impressive stock of the yellow metal under Government stock, among the public and in other institutions including temples. In temples like Thirupathi there would be enough gold to pay out the entire balance of payment of India. Similarly, the gold among the public is estimated at twenty five thousand tonnes.. The problem is to find a viable mechanism to make it support the economy. The gold bonds are an option. In earlier times the currencies were propped up with the support of gold, now the value of currencies are left to decide by the market forces  and the gold reserve does not come in the reckoning. I am of opinion that gold stock of the country should also be given a place while rating a country’s economy.

Any way India will survive the present crisis. It can issue gold bonds or auction some gold in Government stock.  But the real problem is its political class and their vote oriented mind set. Many a reform measures had to put off by the objection of the supporting political parties which sent out negative message to the foreign investors. They rightly doubted India’s ability to carry forward reforms.

 India failed to give proper incentives and encouragement to the foreign investors to invest in infrastructure and industries. India's neighbour Bangladesh is an example, the Bangladeshi currency, tak, is gaining strength against Dollar when Indian currency is sliding. In Bangladesh the foreign investors have invested in industries  which cannot be withdrawn as easily as  investments in shares. India's foreign investment in shares have brought in the twin danger of falling rupee and share value simultaneously, creating a financial catastrophe.

Finance needs meticulous management and India needs to learn a lot in that sphere.

  

  

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