This refers to the “Business Page” reports “RBI steps in to calm bond market,” (Aug. 21) & “Rupee tumbles to record low” (Aug. 22). Warwick Business School assistant professor Sourindra Banerjee has researched Indian businesses in-depth. He says the decline in the rupee by nearly 16 per cent against the U.S. dollar since May is a symptom of a much deeper malaise in the Indian economy. There are three crucial reasons. Since the financial crisis in 2008, Indian markets have a greater focus on attracting short-term money from foreign institutional investors. This was available because FIIs had less investment opportunities in the developed markets of western Europe and North America. Moreover, this money became more easily available because of quantitative easing in the developed markets. But with the turnaround of recession-hit developed markets, FIIs had greater investment opportunities in western Europe and North America. This has led to the withdrawal of investment from Indian markets.
India has been rigged by crony capitalism and corruption in the last five years, battering the image of the country as a reliable investment destination and hitting investor (both domestic and foreign) confidence adversely.
Finally, the lack of reforms, which the media terms a “policy paralysis,” has made the Indian manufacturing sector less competitive than its counterparts in other developing countries. This has seen a surge in the import of manufactured items, in turn increasing the current account deficit for the country, and depleting foreign exchange reserves.
Ashley Potter,Warwick, Coventry, U.K.
The relentless fall of the rupee, now Rs.65.56 against the dollar and Rs.102 against the pound, bears testimony to the ineffectiveness of steps being taken to arrest the trend. The imposition of customs duty on gold has only increased the price of gold making it beyond the reach of the middle class. Populist measures also have a role to play.
K.V. Seetharamaiah,Hassan
There are NRIs who want to remit money to India for various reasons. However, the RBI and the banks have a lot of restrictions on these amounts. For example, one cannot send more than Rs.6,00,000 a week or $7,500 a day. When the government needs the inflow of dollars, I am not sure why there is a restriction on the inflow. This channel of receiving funds through banks is harmless and will be beneficial to all at this point in time. I hope the government and the RBI consider this avenue of getting foreign exchange.
C.S. Narayanan,Bangalore
