The reason behind rupee's fall

The Indian rupee has been very jittery since August last year. The rupee dollar rate which was ranging between Rs 44-46 per dollar last year has moved to Rs 55 at present. Although intervention by the Reserve Bank Of India (RBI) managed to bring the exchange rate around Rs. 50 in January, but the lackluster Union Budget dashed all hopes. Soon after the budget was announced, rupee again started falling. Reasons for this huge fall have been cited as both global and domestic.

Ongoing economic crisis in European zone is being cited as the main reason for this depreciation in the Indian currency. However, there is more to it. In fact, the reasons seem to be more related to domestic concerns than global ones. Any country's currency is a reflection of its economic environment whether good or bad. A weak rupee is a result of the deteriorating Indian economic scenario over the last few years. Government's status quo with regards to major economic policies and sectorial reforms in the union budget hurt the rupee the most. The widening current account deficit which hovered around 1% of GDP since 1990s, now stands at 2.5% of GDP. The tightening of environmental regulations in 2010 hit ongoing and completed projects. However, sectoral reforms in telecom, Oil and gas, power, retailing, fertilizers, airlines and textile did not see light of the day due to political pressures. Indian Government had the chance to bring about these long awaited reforms in the union budget but nothing worthwhile happened. The government has not been able to raise the prices of petrol and fertiliser either. Resultantly, finances of our state run enterprises i.e. railways, power utilities, oil companies are all in a bad shape.

Government's inactivity is going to be of no good to the exchange rate problem. The solution lies in implementation of the proposed progressive economic policies and introducing required sector regulations. We feel that the government would do well to reduce subsidies to fertilizer, food grains and oil & gas sectors. It is time that the burden of rising crude oil prices is shared with the public at large. Also forming consensus with all states on goods and services tax and introducing it soon will help the Indian economy and appreciate the value of rupee too.