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Ananda Sangbad
January 2014
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Has The Indian Rupee Lost Its Storage Value?
account deficit of 4.8 percent of GDP in 2012-13. Insufficient Foreign Direct Investments (FDI) Inflows Lured by the prospects of the "Tiger" economy, international investors began expanding their investments in plants and other projects in India since the beginning of the last decade. But, the trend started reversing in the last few years. As a matter of fact, net FDIs (external investment in India less Indian investments overseas) are on a downward slope, sliding down from a 3.6% of GDP in 2008 to 1.4% in 2010. In the recent times, India has witnessed withdrawal of major projects by global steel giants like ArcelorMittal of Luxembourg and Posco of South Korea. Posco pulled out of its Rs 30,000 crore steel plant project in Karnataka followed by ArcelorMittal who scrapped its $12 billion steel plant project, which it was planning to set up in Odisha. Factors including inordinate delays in government clearance, land acquisition problems, and lack of targeted incentives contributed to the withdrawal. Foreign Institutional Investment (FII) Outflows Overseas portfolio investors have been routinely exiting the Indian capital markets since the beginning of 2013. For example, investors sold rupee assets worth nearly $8 billion in June and $3 billion in July, further deepening the currency's slide and completely negating some of the claw back efforts on the parts of the government. Precipitous Fall in Spring/ Summer - Result of Interconnected Financial System In September 2013, Raghuram Rajan, the former Chief Economist of the IMF who famously predicted the international financial crisis of 2008 was appointed as the governor of the Reserve Bank of India (RBI). In a press interview late summer, he observed that the precipitous fall in the rupee value that occurred in the summer was brought about by the US Fed's signaling a steady recovery of the American economy. He was alluding to the May 2013 announcement by Fed Chairman Ben Bernanke that the year-old monthly $85 billion bond buying program, popularly known as "Quantitative Easing", could be tapered off sooner than later. It was around that time, the International Monetary Fund (IMF) warned in a report that if the U.S. Fed moved faster than the markets expected it to, or before the U.S. economy recovered enough, it could cause an estimated $2.3 trillion in bond losses around the globe as borrowing costs would rise. The interconnectedness of the global financial system means that such an action by the Fed would have ripple effects worldwide resulting in rate increases. The Fed's signal had investors around the world scrambling to get back into the U.S. markets for prospective higher returns in a recovering economy. Several emerging markets experienced voluminous flight of investors' capital after the Fed exit announcement. It had weakened their currencies and threatened to fuel inflation, forcing the many central banks around the world to raise interest rates despite slowing growth rates in their respective economies. Countries from Indonesia to South Africa, Brazil and Turkey also got slammed, as investors betting on higher returns in the U.S., pulled their money out. Soon after the Fed started talking about an exit, the rupee's value slid by about 15%; the IMF slashed its growth forecast for India; and some economists questioned whether the country was in the need for external financing. In the three months that followed, rupee lost approximately 20% of its value. It is intriguing to note here that the rupee recovered about 10% of its value following another Fed announcement on September 18, 2013, which indicated that due to continued weaknesses in the U.S. economy the central bank was reversing the intended course and would continue the easing in the near future. It was around this time, RBI announced two consecutive hikes in the benchmark interest rate despite a slow economy; it also unveiled a host of financial market reforms and some capital control measures
The Tree-Hugger By Rahul Ray A tree-hugger 'hugs' a tree like a dear friend, and prevents it from being felled by a logger's chain saw, essentially representing an environment-friendly 'green' person. Ironically, treehuggers have been butt-ends
of many jokes - persons who are a bit 'green' or immature or even screw-balls who haven't got the sense of reality in mind. As if to say - trees are plentiful to be chopped down undeterred, to make room for humans to live,
designed to shore up the rupee. And the rupee bounced back probably piggybacking the Fed's change of plan and the RBI measures. The following graph shows the recovery.
Market Overreaction or Economic Abyss For the foreseeable future, India's rupee crisis has muted any obsession with competing the economic might of China, but is it as big a disaster as it is being played out to be? Again opinions vary with some observers and economists giving up on the India story due to her poor record and slow movement on long term reforms, tackling corruption, investment in infrastructure, and decisive leadership. Yet many others think that India is nowhere near the panic button as the market and media reactions suggest it is. It is not unusual for developing countries to run a CAD of similar size until their economies mature. India's CAD of 4.8% of GDP is a bit high compared to the developed country average of 3% (US 2.8%), but it is definitely within the 3% - 6% range of the CADs of developing economies of similar nature - Turkey, Egypt, Brazil, etc. The current situation appears less like a verdict of gloom and doom on the economy and more like a case of CAD financing in the short term. With India's foreign exchange reserve of $280+ billion and Special Drawing Rights (SDR) and IMF credits approximately $10 billion, she could probably sustain the immediate need to finance the monthly accretion in the CAD and servicing its moderate level of international debt of $450 billion for about a year or so. Need for large scale external financing doesn't seem to be knocking at the door. Finally, some of the RBI reforms have started to pay dividends in terms additional availability of foreign exchange deposits in the country and lower level of overseas investment by Indian corporations and individuals. A dire situation like 1991 may be far away from recurring! Where Do We Go From Here In a global financial system where markets will generally reflect investors' expectations and confidence in respective economies, some amount of irrational reactions are bound to happen. But, a country's economic fundamentals would still continue to be the most important factors influencing investors' behavior. Given that backdrop, Indian rupee's sustained and long term recovery will depend on many structural adjustments that India needs to pursue in the coming months and years. Some of which have been discussed in this article. And it started happening - one at a time: the markets actually greeted the appointment of the new RBI governor Raghuram Rajan. If a decisive and hard charging government at the national level is elected in the upcoming election, the country likely will follow up on the economic reforms that began decades ago. Whether that happens or not, pundits and policy makers will continue to debate the tradeoff between true reforms and populist policies, but the markets will still be influenced by factors that sometimes are beyond the control of government and will impact the well-being of the nation in a way that may or may not be warranted by the fundamentals. If Jevon had lived long enough to experience the globalizations, he would have for sure seriously considered updating his treatise. to farm, and to build factories. The march of human civilization has done exactly that - forests have vanished, along with the unique eco-systems that are as old as the mother earth. Large swaths of pristine Amazon forest have been chain-sawed down to make grazing pasture for beef cows; so has all the trees in Nepal's Himalayan region leaving behind bare mountain
walls and serious soil-erosion in the wake. The list goes on. The trees that once lined beaches to protect them from erosion and flooding are no longer there. In addition, with falling trees, carbon dioxide, the greenhouse gas is not being trapped resulting in global warming with devastating efTurn to page 7
Atho Puja Kahini By Guru Chakravarty Puja, Bhajan, Kirtan and Katha are very much a part of our lives, all meant to create and instill devotional feelings towards God. Whereas pujas are conducted by a pujari with Sanskrit slokas, the others are conducted in a group setting, generally in a local language. Bhajans are popular songs about the greatness of God that people sing together. Kirtans, originally popularized by Gauranga Mahaprabhu, have had a rebirth with the help of "Hare Krishna"mantra chantings of ISCKON, the Vaishnava society, and many other groups. Bhajans and Kirtans are essential parts of worship rituals in north Indian culture. Kathas were once highly popular in a village setting where one or more singers would present devotional poems from Ramayan or such other epics in a theater like stage, but they lost their glory to the modern day versions of the same on video screen. Today, puja is the most accepted way to assemble for religious celebrations, not necessarily because of its devotional value, but because it is a social event. That is a true statement particularly applicable to the Bengalis, who are known to love "addas", Bengalis love to talk incessantly, and a puja setting gives them the opportunity to do just that. Whereas a puja is being performed by a pujari, with his back to the audience, the rest of the people feel free to do anything. After all, what better venue is available at no or very little cost to attend a get-together where you can talk uninhibitedly, pass any judgment, and best of all, get the latest on whatever is happening in the community. A puja setting is a great event to achieve all that, along with the satisfaction that you offer a "pushpanjali" to console your soul that you have done something to please God. Ironically, puja without "bhakti" (devotion) is not the best path for earning God's blessings. Let us see how a standard puja is performed. A standard puja, as prescribed in the "Purohit Darpan" or such other books, has logical and sequential steps for the pujari. First, you state your "sankalpa" (objective) of the puja of a particular God or Goddess, then take oath in the name of and for the benefit of a client who is paying for the cost of the puja. You proceed to purify yourself, the puja materials like the water, the flowers, and the milk products. You establish the "Ghat" and welTurn to page 6