72 ... and going weak!

Six years ago, I blogged about the falling Indian rupee, which had reached "an all-time low of 55.03 against the dollar."

I am not an economist nor a finance person.  Common sense and critical thinking is all I have; I wrote then that "buying a dollar for 55 rupees might even sound like a good deal" because I expected it to keep falling.

Common sense and critical thinking did not prepare me for this, however:

On Monday (Sept. 10), the rupee nose-dived to a new historic low, ending at Rs72.45 to the dollar. In this calendar year alone, its value has eroded 12% against the greenback, making it one of Asia’s-worst performing currencies.

Yep, "one of Asia’s-worst performing currencies."

In that post, I compared India with one other country that has always been a grand failure--Argentina.  I wrote there, "India is not that far behind Argentina in that respect."  Here too, in the case of the slide against the dollar, Indians can comfort themselves that the rupee hasn't fallen like the Argentine peso, which has lost half its value!

In that post in 2012, I wrote:

Indians, similarly, ought to figure out how to get their monies back from the crazy politicians at every level whose personal riches have been at the expense of the regular folks who work hard. For starters, they can get vote all the bums out. The problem though is this: throwing the bums out will mean new bums will get in!

There was one comment to the post from a stranger, who ranted:

India would have been better off with ordinary people with common sense at the helm, rather than there cronies with brain-washed ideas from the west, tamely speaking in a "Phoreen" accent trying to sound more intelligent than rest.

The foreign accent was directed at the party that was in power then--Congress.  In the elections after, the "real Indians" voted for "ordinary people with common sense at the helm."  I don't know about that commenter, but to my common sense and critical thinking, 55 rupees to the dollar sounds like a much better deal for Indians than 72 rupees to a dollar ;)

As I wrote then, "throwing the bums out will mean new bums will get in!"  The new bums are well entrenched, and the modi-toadies are hard at work to re-elect them, and to also elect more such bums at the state offices. 

But then I am not a political scientist either; common sense and critical thinking is all I have.

From 12 to 40 to 55 to 60 to 65 to 70? Not aging, but the Indian rupee losing ground!

Until a few months ago, the Financial Times allowed unlimited access--all I had to do was provide an email address. Ah, those were the days before many leading news and analysis outlets, one after another, started erecting huge paywalls, which makes the lives of cheapos like me miserable!

Having experienced all the free access to ideas, I know what I am missing. For instance, the opinion pieces at FT.  Three years ago, Martin Wolf's analysis there made a great deal of sense to me, which I blogged about:

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.

I would love to find out what Martin Wolf has been writing about recently; but, those damn paywalls!  (a note to readers: you can always send me gift subscriptions; haha!)  I bet he has had some insightful comments, especially about how all these fit into the Indian rupee story.

More than a year ago, in May 2012, I noted this:

Indians better start getting used to the fifties.  In fact, buying a dollar for 55 rupees might even sound like a good deal because chances are high that it could get worse

Shit happened for India and the rupee. A whole lot over the year since then

The rupee plunged 8.1 percent this month to 65.7050 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. This is the biggest drop since March 1992 and the steepest among 78 global currencies tracked by Bloomberg. 

And to think that the exchange rate when I left India for good back in 1987--of course, a rate that was fixed by the government and not by the market--was about 12 rupees to the dollar!

Of course, we need to keep in mind that the falling rupee by itself is not the problem as much as it is a symptom of much deeper problems:

 The accumulating signs of economic distress — slower growth, a widening current-account deficit, higher oil prices and rising inflation in general — suggest that the monthlong fall of the Indian rupee in currency markets may be a symptom of fundamental troubles in the Indian economy and not just part of the broader difficulties experienced by Asian emerging market currencies in recent weeks.
Hints that the Federal Reserve in the United States may soon shift to a tighter monetary policy have prompted global investors to shift billions of dollars out of financial markets from São Paulo to Jakarta to Mumbai, eroding the value of local currencies in developing economies. But the Indian rupee has fallen the fastest of any emerging market currency in the last month, down 8.1 percent. Broader investor disenchantment with emerging markets has been compounded here by worries about India’s economy

India's prime minister, Manmohan Singh, who was the architect behind the economic liberalization policies twenty years ago, and who is caricatured in plenty for his silence and not saying anything, spoke on this issue:

Singh blamed global unrest and a huge current account deficit for the fall of the Indian rupee, which has depreciated sharply against the dollar since the last week of May and fallen by around 20 percent since the beginning of the year. The 80-year-old economist restated his government’s commitment to reforms.
...
Singh placed the fall of the rupee on global unrest and the fear that U.S. Federal Reserve is on the verge of ending its easy money policy. This turbulence has not only pulled down the value of the rupee but also other global currencies like the Brazilian Real and the Turkish Lira.

It is crazy to realize that this development is no surprise at all.  The surprise is that nothing was done over the year, which speaks a lot about India's dysfunctional politics, I suppose.  Back in May 2012, I noted what the Financial Times had to say:

The symbol of India’s fall from grace is the rupee. It has sunk more than 17 per cent against the dollar this year to its lowest level on record. That ought at least to have helped exports. In fact they have shrunk, along with industrial output, which fell 3.5 per cent in March....
If foreign investors take fright, India’s balance of payments situation could quickly deteriorate. Standard & Poor’s has warned it may downgrade the rating on India’s sovereign debt unless Delhi can get the fiscal deficit under control. India also needs faster growth to help bring hundreds of millions of people out of abject poverty. 

It is just bizarre, and depressing, that the tea leaves were interpreted pretty much the same way by experts, and yet nothing was done over the nearly two years.

As always, it is not the rich or the upper-middle-class that will suffer, but it will be the millions of poor.  The inflation that Martin Wolf warned about three years ago means that the prices of everyday items, especially food, have increased considerably.

If only India had made use of the opportunity when easy money flowed in from the rest of the world!  Instead, the country made a big pitch to the world to recognize the rupee as an international currency and celebrated the creation of a symbol for the currency!

As I often comment, it is always one heck of a horse race between India and Argentina on wasting opportunities and doing the worst possible things at the worst possible moments.  Let us see if Argentina can match this, or even raise the stakes!

Mr. Modi goes to London? I hope he doesn't get to New Delhi!

India recently celebrated its 66th birthday as an independent country.  If we parse those years into periods of 20+ years, it certainly looks like this is the end of the one of those periods and the proverbial fork in the road for India.

After about twenty years--in 1966--Indira Gandhi assumed the leadership position and set the country further down the path of nationalization, and empowering Ramamirthams in the licence raj that, in turn, worsened corruption, which is another form of "rent-skeeing" in economics jargon.

After another twenty-plus years, with the death of Indira and later her son Rajiv, the country's economy and polity took a different turn more because of a necessity than as a choice.  In politics, there was no Nehru/Gandhi scion to continue to treat the country like some kind of a kingdom over which they had a right to rule, and in economics it was crisis time.  A crisis that put India on the verge of defaulting on its loans. The IMF bailed India out, and Manmohan Singh entered the scene.

In the twenty-plus years since, India's economic liberalization paid off, enough to trigger slogans like "India Shining" and the country was famously discussed by Thomas Friedman when he suddenly discovered that there were things happening in India.  Friedman proclaimed that the world was flat, and Wall Street beat the BRIC drums.

Now, yet again, India is looking at economic and political transitions.  The rupee has been falling, sometimes way too steeply, which would surely cause the new chief of the central bank to have quite some sleepless nights.  There is less investor confidence and, hence, foreign capital isn't flowing into the country even to the extent it previously did. All these in addition to the wide trade and budgetary deficits ought to make people in India worry, a lot.

The country is in a better position to counter a crisis, with $277 billion foreign reserves, enough to cover more than six months of imports, according to data compiled by Bloomberg. That compares with less than two months of import coverage in 1991, according to a RBI report in August 2012. 

But, no serious policy discussions might be possible at this time because the country is only a few months away from general elections. Manmohan Singh may have hoisted the flag for a record tenth time at Red Fort to mark the Independence Day, but it is most likely that there will be a new prime minister the next time around.

Narendra Modi wants to be that new guy. He so wants it. Wants it really, really, bad. But, he comes with train-load of baggage. A literal train-load as well. That baggage is also why he has been, for a few years now, persona non grata in the United States. Modi knows all too well that he needs to convince India that he will be able to deal with the rest of the world. Especially the US, the UK, and the Euro Zone.  He has found an opening--Modi "has been invited to address MPs in the House of Commons."

Barry Gardiner, Labour MP for Brent North, has defended the invitation to the politician to address MPs on "the future of modern India".
Mr Gardiner said: "This is a man who has been re-elected three times as the chief minister of the state in India with which Britain does the most business. In fact, we do more business with Gujarat than with the rest of India put together.
"He is now the leader of India's official opposition party. He is obviously a key player in Indian politics, and as such he is somebody British politicians need to hear from."
Shailesh Vara, Conservative MP for Cambridgeshire North West, has also invited Mr Modi to speak to a group of MPs in Westminster.
"I am aware that Mr Modi is controversial, but I am also aware that over the years there have been three inquiries, and that none of them have found anything against him," he told the BBC's Asian Network.

Interesting how both the Conservative and Labour arguments are being made with the business calculus.  Politics makes strange bedfellows, indeed!

But, hey, the UK is not China. So, the opposition to Modi is loud as well.

As if all these aren't enough hassles for the country that seems to be in perpetual denial with its obsession over cricket and movies, the siblings--India and Pakistan--seem to be getting angrier at each other with every passing day, and bombs are bursting across the Line of Control at Kashmir:

Using heavy calibre guns, Indian Army retaliated strongly after Pakistani troops on Thursday resorted to unprovoked and indiscriminate firing with rocket and mortar shell attacks at LoC posts in Jammu &  Kashmir's Poonch sector that injured three Army jawans and a civilian.
This is the 11th ceasefire violation by Pakistan in the past five days, Army officials said.

With a new government in Pakistan, and the end of the current government in India, it might be the most opportune moment for various factions to pursue their own narrow self-interests.  It won't surprise me if the fragile situation brings the worst from the humans. I will be surprised, however, if the crisis in both countries become opportunities for wonderful things to bloom.

I hope to be surprised.

As the rupee speeds towards 60 ... hey, retirement age!

India's economic situation and the worsening rupee are beginning to consume my attention, which is not good news!

The Financial Times editorial notes that the situation is quite serious:

Not so long ago there was excited chatter in India about the possibility of the country overhauling China to become the world’s fastest growing large economy. But the Indian tortoise, far from gaining on the Chinese hare, is going backwards. Growth has not edged into double digits. Instead it has sagged back towards 6 per cent. In recent days, three investment banks have downgraded their view of India’s prospects. Morgan Stanley says the slowdown, the result of policy paralysis and a worsening external environment, could be deep and prolonged.
The symbol of India’s fall from grace is the rupee. It has sunk more than 17 per cent against the dollar this year to its lowest level on record. That ought at least to have helped exports. In fact they have shrunk, along with industrial output, which fell 3.5 per cent in March.

 Remember all the time and the effort that went into selecting a symbol for the rupee?  The focus ought to have been on the substance and not merely a symbol.  Well, hey, the new sign is fast losing its shine!

If foreign investors take fright, India’s balance of payments situation could quickly deteriorate. Standard & Poor’s has warned it may downgrade the rating on India’s sovereign debt unless Delhi can get the fiscal deficit under control. India also needs faster growth to help bring hundreds of millions of people out of abject poverty.
Mr Singh, who used to be lauded as the architect of economic reforms, is now routinely derided. More than a prime minister, he is characterised as an errand boy for Sonia Gandhi, the Congress party leader. Indeed, the 79-year-old Mr Singh seems to have lost all ambition, as well as any grip over the administration he might once have had.

Singh has become a punchline--an awful way to be finally remembered in history!

But, forget all the words of the commentators; editorial cartoonists distill them well into a neat image, like this one:

Sometimes, I wonder if Indians are way too intoxicated by their cricket obsession to even notice the deterioration.  An outright ban on cricket might be the best fiscal policy, eh!

Free Fallin ... the Indian Rupee exceeds the 55 speed limit!

A couple of weeks into my sabbatical stay in India, I noted in my column that India's rupee was falling against the dollar--it was big time news because the rupee was trading at worse than 54 to the dollar.  A little bit of the Reserve Bank's intervention helped stabilize the situation, but, the slide was certainly coming back if the government's policies weren't changing and India's economic outlook wasn't improving.

Well, it is almost five months since then.  Government policies at the federal and state levels continue to be crazy and chaotic.  India's economic situation isn't improving all that much, despite the fact that the world is not in any recessionary trough.

So, should we be surprised at all with this development?

The rupee, on Monday, plunged below the psychological 55-level to close at an all-time low of 55.03 against the dollar amid robust demand for the U.S. currency from banks and importers

In the bad old days of the government fixing the exchange rate, which was how it was done way back when I left India for graduate school in the US, it was, as I recall, about twelve rupees to a dollar.  Later, when India had no option but to restructure its economic policies in the early 1990s, the rupee's price was determined not by the government but by the market forces, and soon it was into the thirties and then forties, which is where it stayed for a long time.

Now, Indians better start getting used to the fifties.  In fact, buying a dollar for 55 rupees might even sound like a good deal because chances are high that it could get worse:

Analysts said rupee is likely to weaken further due to gloomy macroeconomic data and uncertainties in global economy.

"We expect it to depreciate further in the coming few months. Short-term measures by the RBI may not assist in reversing the trend," said Anis Chakravarty, senior director at Deloitte in India.

It used to be said about Argentina that if ever the government could do the worst thing at the wrong time, well, the leaders made sure they didn't waste that opportunity and, thus, for decades, the country has terribly underperformed.  In the years before WWII, Argentina was thought of as the next and Rostow felt so convinced by the data that he pronounced that the country was ready for one huge but delayed takeoff.  Instead of taking off, it has been a series of North Korean launches, it seems like!

India is not that far behind Argentina in that respect.  In the post-recessionary world, with Europe in one heck of an economic mess of its own, and with the US over-expended, one would have thought that India would have capitalized on the opportunity.  After all, unlike China, which relies way too much on foreign demand while severely restricting internal consumption, India has a robust internal demand for goods and services and can, thus, insure itself against the vagaries of foreign trade.  But, the country is so keen on going the Argentine route. 

The Hindu's editorial notes:

More effective measures should aim to check the trade and current account deficits. Unfortunately, many of the factors contributing to the widening deficits are beyond the control of the government. Oil prices are expected to remain sticky at the current high levels. The import bill is unlikely to come down in the foreseeable future. On the other side, exports have faltered after a heady run during most of last year. The rupee's fall is a symptom of a deeper economic malaise.

Yep, a very deep economic malaise, unfortunately.

All these remind me of a play that we read in high school, called "The Refund."  In that play, two former classmates run into each other and the successful one tells the loser that he became rich by trading in currencies.  The loser cannot understand how one can get rich that way.  To which the successful one replies that the loser ought to go back to their high school and ask for a full refund of the tuition he had paid over the years.  The play then gets to be quite farcical. 

Indians, similarly, ought to figure out how to get their monies back from the crazy politicians at every level whose personal riches have been at the expense of the regular folks who work hard.  For starters, they can get vote all the bums out.  The problem though is this: throwing the bums out will mean new bums will get in!

Holy cow! The rupee is 60% undercooked against the dollar?

The expansive food court at Chennai's Express Avenue mall had quite a variety of foods--from dosais and aappams to chicken tikkas to KFC and the likes. 

The prices were quite high for local conditions. 

A typical single-serving meal at most outlets was in about 150 to 175 rupees, and more.  At current exchange rates, about three US dollars. Soda or water is an additional payment.

Yet, customers were in plenty everywhere.

I typically don't think in terms of the crude exchange rates in these contexts.  I employ an exchange of fifteen-to-one, instead of the about 50-to-1, for the Purchasing Power Parity comparisons.(Note, for instance, the nominal versus PPP figures for India's per capita GDP in this Wikipedia entry.)

One can now see why I write that the prices were expensive.  If I used a 15-to-1 exchange rate, then on my PPP scale, the food court items were typically in the ten dollar range!

Prices at the food court were merely one of many experiences--now and over the years--that have always made me think that India is an expensive place for a tourist. 

Going to Ecuador, for instance, was incredibly inexpensive.  The hotel room I had in Quito--in its historic downtown area--was about $35, including breakfast.  There is no way I would be able to get that kind of a place in India's major cities at locations that attract tourists.

While there are a number of reasons, the one that appeals to me as the most significant one is also quite simple: there are two Indias, one of which is developed and the other is practically the Third World.  Express Avenue is one of the many that caters to the developed India.  The rates here are high.

And then there is the other India.

Even as I work with this understanding, The Economist complicates my life even more:

The cheapest burger is found in India, costing just $1.62. Though because Big Macs are not sold in India, we take the price of a Maharaja Mac, which is made with chicken instead of beef. Nonetheless, our index suggests the rupee is 60% undercooked.

If the rupee were to appreciate further, then it will be that much more expensive for the bargain-hunting tourists like me who face sticker shock in India.

Imagine the sticker shock for the Third World India, even now!

Currency wars reach the Indian shores

A few days ago, I quoted Martin Wolf, who wrote in the Financial Times that:

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.

And ...?  Here is the NY Times:

The Indian rupee is soaring — up 9 percent against the dollar in the last 16 months. That has taken a toll on exports like textiles by making them more expensive on the world market. And the strong rupee poses longer-term threats of overheating the economy.

So, one would expect India to take appropriate action?  Not yet ...

instead of fighting currency appreciation, as Brazil and some other countries have done, India has been willing to let the rupee rise — for now, at least.
India is simply too hungry for the foreign capital that is drawn to the strong rupee and is driving it higher, because that influx of money is helping support this country’s approach to developing a modern consumer economy.

Makes sense,right?  A developing country will need capital for all kinds of investments, and if foreigners are eager to send their money across, hey, grab that:

The influx of capital has helped fuel a nearly 9 percent annual growth rate for India’s economy. It has also powered the Indian stock market to near record highs. A big beneficiary of the stock rally has been the government, which is selling shares in state-owned firms like Coal India, the world’s largest coal miner.
The government, which has a large budget deficit, plans to raise $9 billion in the current fiscal year from share sales and spend the money on jobs for the rural poor and other welfare programs. A stronger rupee also reduces India’s bill for commodities, like oil, that it needs to import.

Imagine if China too allows its currency to appreciate ...

A symbol makes a currency? Nah!

This is the symbol for the Indian Rupee--has been adopted by the Indian government, and will now work its way through various international bodies for acceptance and implementation worldwide.

The more important question is whether the Indian rupee will be accepted at, say, Tokyo's Narita Airport.  It is one thing to design a new symbol, it is another for the currency to be accepted outside India.  That will take a long time.

One commentator notes:

Looks a little like Harry Potter's lightning scar, doesn't it? Either that or the logo for a new import sports car. Or maybe even a windblown pine tree in a Tom Thomson painting.

Over at the WSJ is this observation:

The new symbol contains the Devanagari ‘Ra’ and the Roman capital ‘R’ without its upright leg. It’s hard to describe. It also looks like backward “c” suspended on a backslash with some railway tracks running through it. That help?

So, what does the Gray Lady has to add to this?

It was designed by D. Udaya Kumar, a student at the Indian Institute of Technology, who studied typography, scripts and ancient printing methods.

Where do some of the other currency symbols that we use often come from anyway? The American $?

When the United States adopted its own currency in 1785, it used Spanish money as its model—a deliberate "screw you" to the British. Scholars have since theorized that the $ sign evolved out of an abbreviation for peso: The plural for pesos was "p^s," which eventually became "ps," and then simply an "S" with a single stroke denoting the "p." One early instance of the $ symbol crops up in a letter written by the merchant Oliver Pollock in 1778. Pollock also uses the "ps" abbreviation, making the letter a bridge between the two. The double-line through the S variation is less easily explained. Some believe they represent the twin pillars of Gibraltar depicted on the Spanish coat of arms. Others say it's shorthand for the letter "U" superimposed over the letter "S"—for U.S.

Now you know!