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India: floating on a weak rupee
When Sensex crossed the 10.000-mark, the union finance minister Mr.P.Chidambaram was in all smiles. For good reason. The historical event, after all, took place during his tenure. Proof enough of the economy's bounce. Forget the farmers taking their life at the other end of the scale. He is only following his prime minister's footsteps. In his earlier avatar as finance minister, Dr.Manmohan Singh, also said the same thing about growth rate. He wanted a high rate to roll on. Ignore the closed factories and thrown out workers in the wake of his reforms. Such sacrifices are small price for a big game, we were told.
But PC's reading of the market index is patently wrong. Look at Japan, the world's second largest economy. There are lessons to be drawn from the plight of the Tokyo stock exchange. Throughout 2005 the Japanese economy flashed strong signs of revival. A good number of economists then said the $4 trillion economy's nightmare of nil growth was finally over. The 225-share Nikkei index symbolically rose by 40%.
A cold shower this year left the index in the grip of a creeping paralysis. It is up only by 1.8% so far. The economy has lost its vigour. The slowing US economy and the high oil prices are there to blame. But hitting it more than most are the forces of global market. And Japan is finding it difficult to make adjustments. As of now it is hanging on to the low value of its currency. But the pressure is on for a serious about turn in exchange rates. The changed political situation in US is unlikely to promise a longer grace period.
Similarly the Indian economy will lose much of its oomph if the exchange rate of the rupee reflected the market forces. The Indian industrial products are known to enjoy a protection level of 55% thanks to the weak rupee. Extra cover from import duties. The Indian industries are "standing up to foreign competition" only for that reason. Once the skewed exchange rates are rectified the outlook will be less rosy. |
