Rupee yet again continued with its downfall on Thursday breaching the 65 mark to a new all-time low of 65.56 against dollar.
The currency finally recovered by over Rs 1 and closed at 64.55, down 44 paisa. Amid the recent weakness in the currency, one is forced to ask whether this fall came all of a sudden or was the Government aware of the forthcoming currency crash and yet chose to ignore.
long back in July 2000, when the rupee breached 45 per dollar levels, everyone was in panic mode. Analysts were busy assessing their strategies to cut their losses, but one thing back then that turned to be positive for the country was the small current account deficit (CAD). In 2001, country’s CAD was merely 0.7 per cent. Country’s imports were stable around Rs 21,560 crore, while exports had registered a slight increase to Rs 20,089 crore. So overall, the gap was small and could be easily managed. Also other economic fundamentals factors showed improvement and the currency panic was short-lived.
From July 2000, it took 12 years for rupee to depreciate by Rs 10 to the level of Rs 55 per dollar which it breached for the first time on May 21, 2012. In this 12 years, the currency showed strong appreciation when it almost reached Rs 39 per dollar mark in October 2007. After breaching the 55 per dollar mark, the currency again rebounded and traded in a range of 52 to 55 per dollar till May 20, 2013.
The whole bloodbath started on May 20, 2013 when rupee again breached the 55 mark and ever since it has been on a constant depreciation path. However, the worst happened in just three months, rupee fell to a new all-time low of 65.56 per dollar. Rs 10 fall from 45 per dollar to 55 per dollar took 12 years but the next Rs 10 fall happened in just three months.
One wonders what has gone wrong since May 2012, and why both the Government and other economic agencies failed to identify the magnitude of crisis. It seems all the economic factors did warn of the disaster, yet the Government turned a blind eye to all signals.
Since June 2012, country’s imports have been on a rising trend. Back in June 2012, India’s net import bills were to the tune of Rs 2,00,453 crore which by July 2013 rose to Rs 2,27,760 crore. On the other hand, exports were only able to rise marginally. In June 2012, country’s net export stood at Rs 1,39,645 crore which rose to Rs 1,54,427 crore by June 2013. So, through the last year, the gap between imports and exports was increasing, also CAD was at an all-time high of 4.8 per cent in FY13.
All these numbers were already in front of the Government, yet it prolonged the issue so much that it finally went out of its control.
No matter what the Government announced, the rupee depreciation has continued. The steps to relax FDI norms, ban on import of precious metals and gold coins, relaxation in rules for external commercial borrowings for State-owned companies, curbs on import of non-essential goods and other steps to boost exports, all failed simply because the Government acted very late. Experts feels, had the Government taken these steps right when the signs had started to appear, things would have been much different.
Hence, blaming the US Federal Reserve for winding down its bond buying plan as the key reason for rupee depreciation is not completely correct. Somewhere the Government also needs to take the responsibility for ignoring all the triggers and allowing the country's CAD grow to an extent where it is not only dominating FDIs but has also managed to scare most of them from investing in the country.