Experts blame food security bill for the weak rupee

Despite Finance Minister P Chidambaram’s repeated assurance that the government would not allow to go down fiscal deficit further, the rupee hit record low on Wednesday and touched 69 against US dollar. It is expected to cross 70 if government does not announce emergency corrective measures.

The downfall of rupee continues as foreign investors carry on selling bonds of government run companies and PSUs. With Rupee slamming down to 3.7% on Wednesday, it also witnessed a biggest single-day drop since 1995.

Experts believe that the recent decline in Indian economy is continuing due to Government’s inefficiency to control the fall.  In the name of reforms, the government has introduced several ambitious money-guzzling projects including the recent Food Security Scheme. With the Syrian crisis escalating rupee is expected to fall further.

Renowned Economists Arvind Panagariya said that the recent collapse in the Indian rupee attributed due to the Food Security Bill and Syria crisis.

 “The most recent decline is perhaps the result of the Food Security Bill having been voted in the Lok Sabha, compounded by the effect that there is some threat of intervention by the United States in Syria which would mean oil prices would rise,” Panagariya told IBN-Live.

“Those are the immediate kind of factors but it also reflects the effect of the current account deficit which needs correction. When rupee was at 60 to a dollar, I didn’t feel any sense of perturbation because that was a way to do correction,” he added.

Panagariya also said that government’s handling of the situation has been disappointing.

“It is undoubtedly the largest part of the reason, because it has been nine years, we dropped the ball on reforms, the growth oriented reforms. We are doing the social side, but on the growth oriented reforms, we dropped the ball, “he said.

Industrialist Ratan Tata feels lack of leadership in the country is aggravating the Indian economic crisis.

“There are leaders whom I’ve respected all through my life for their public life. But something has happened that has diffused this leadership. We don’t have leadership that we have been talking about, that is leading from the front,” Ratan Tata said.

Ashtosh Raina, head of foreign exchange trading at HDFC Bank also echo Panagariya’s concern.

“The Food Security Bill is the key reason for the rupee’s fall on Tuesday. It would open floodgates for (credit) ratings downgrades, if the fiscal deficit is not reined in,” he said.

Meanwhile RBI has announced to sell dollars directly to public sector oil companies to consolidate the rupee in the offshore forward market.

If the Manmohan Singh led government does not take immediate corrective steps to tackle the situation, we are definitely heading back to 1990s situation with debt, rupee devaluation and depression. It seems to us that the fall of the rupee can be checked only by the fall of the present government.   

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