Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Tuesday, May 01, 2012

Danger lurks in rupee's slide

India’s ballooning trade deficit means it has to run just to stand still. Without steady capital inflows, the currency will collapse. But without a steady currency, it is hard to attract foreign capital. The rupee’s 19-per-cent fall against the U.S. dollar over the past year is worrying.

During most of the last decade, the current account deficit has been funded without great difficulty. Foreign direct investment, portfolio investments and about $60-billion (U.S.) a year of remittances have usually exceeded the shortfall in trade. India has accumulated around $300-billion of foreign currency reserves, equivalent to 17 per cent of gross domestic product.

But the annual trade gap has widened from $104-billion to $185-billion. At 3.7 per cent of GDP, the current account deficit is the highest since 1980, when the International Monetary Fund starting collecting data. High energy prices are the main culprit for the recent deterioration – oil accounts for two-thirds of the country’s import bill. Of course, the blow would have been less painful if India had a stronger export sector.

The support of foreign investors is more necessary than ever, but New Delhi’s mismanagement has discouraged them. Foreigners bought an average of $3-billion a month of Indian debt and equities in the first three months of 2012, according to the Securities and Exchange Board of India’s website. So far in April, they have been net sellers of $403-million.

The currency’s fall threatens to create a negative spiral. More expensive imports are inflationary and put pressure on corporate profits. Government subsidies of domestic fuel prices become more costly, adding to the fiscal deficit, which swelled to 5.9 per cent of GDP in the fiscal year that ended in March. Furthermore, the rupee’s slide creates financial stress for Indian companies that have borrowed in dollars.

India’s currency reserves provide a buffer. But if capital flows turn sharply negative the reserves could melt away quickly. And if investors start to believe that the rupee is a one-way downwards bet, they will race for the exit. Predictions of a declining currency – UBS suggested a further 6- per-cent fall last week – could prove self-fulfilling.

Original Article
Source: Globe
Author: Jeff Glekin 

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