Questions are being asked about the slide of the Indian rupee against the world’s major currencies.
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Not long ago, the rupee was up around the 80 mark against the US dollar, but months of steady collapse have left the Indian currency hanging loose in the wind.
Now, currency experts and analysts see little hope of the tumble down the stop abating and expect the rupee to do well to stay at 65 to the US dollar and to continue to bob up and down for some time.
India has problems. The nation may have a huge workforce and a low cost base, but it has to buy in expensive oil, gold and other commodities from overseas.
The simple fact is more cash is going out than is coming in.
Economic challenge
Any investor knows if they ran their life like that, sooner or later they will hit a wall and angry banks will start coming after their cash and the borrowing stops.
The Reserve Bank of India has tried to prop up the rupee and failed. Propping is a temporary measure anyway and what India needs is some to grasp the nettle and offer long-term economic solutions.
As one of the BRICS economies, India has shown growth to match the nation’s potential, but now that growth is slowing. The latest figure is 5% GDP growth.
The rupee is struggling to stay above 60 to the dollar – down more than 10% in 2013 and over 26% in 24 months.
The government faces a massive challenge. India has tried to encourage foreign investors in to the economy without success. Inflation is high and the government is locked in stalemate over many policies.
Low confidence
Confidence is low in business and the economy and will ebb away even more so over the next few months unless a steady hand takes the helm.
A general election is on the way next spring and politicians are starting to take their eye off the economic ball.
“The economy is struggling. There’s comparatively poor growth compared to the norm, fiscal and current account deficits, and an election is approaching,” said Philip Poole, global head of macro investment strategy at HSBC Asset Management in London.
“The rupee looks inexpensive, but the outlook for short term flows is worrying. The government and central bank need to take charge and make some firm policy statements.”
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