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India's Economy Rebounds Slightly, Risks Still Remain


India’s currency slide was halted today, but hit a new record low on Tuesday. At 67 rupees to the dollar (compared to the record low of 68.8), it’s not a dramatic shift, but is still a good sign. Reuters has the details:

The Indian rupee rebounded on Thursday from a record low as the central bank’s action to sell dollars to oil companies provided relief for the currency, albeit one seen unlikely to last unless the government acts to shore up a sagging economy.

Policymakers scrambled for solutions to what some economists are now describing as a crisis. These included monetizing the country’s stash of gold and lowering fuel consumption to reduce import demand.

At vital moments, like when the economy is faltering, India’s leaders need to act quickly before a slip becomes a long decline, but given the country’s diverse society and divided government they’re often incapable of decisive action. The current Congress Party-led government is tangled in scandals and, with one eye on dropping poll numbers, just pushed a food security bill through parliament. It will provide food aid to as much as half the country but put much added pressure on the national budget. The bill is exactly the kind of unwieldy instrument Congress likes to use to increase popularity but which ends up encouraging corruption and bureaucratic overreach.

The opposition, meanwhile, is seizing the economic crisis as an attack weapon. Onion prices have soared, for instance, so the BJP set up stalls across the country to sell basic foodstuffs at lower prices. The BJP’s presumptive candidate for prime minister, Narendra Modi, points to Congress’s inability to deal with the crisis to assert his superiority.

As elections loom, the political environment is growing nasty at just the time when cooperation and action are needed. Investors worry that the currency slide will continue because Congress can’t or won’t deal with the problem swiftly. Tomorrow, the Prime Minister is expected to give a speech to parliament on the crisis. Will he have news of progress, a clear plan, to offer? We’ll see. At stake is not just Congress’s popularity but the balance of power in Asia, which has been held steady for years because of India’s growing wealth and power.

[Rupee notes image courtesy of Shutterstock]

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  • tarentius

    The rupee is a dead cat bouncing.

  • Jacksonian_Libertarian

    India wants a weak Rupee, they want all their exporters and potential exporters frothing at the mouth at the enormous profits they can now earn. Don’t let the big crocodile tears fool you, everything is proceeding according to plan, and they are about to eat China’s lunch.

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