Economic Highlights
New
Delhi, 24 October 2022
Rupee As Global Avatar!
WORLD TRADE IN $ SHRINKS
By Shivaji Sarkar
A failed experiment with the UK
Prime Minister Liz Truss, who quit office in 44 days, has shaken the once
mighty kingdom and globalised market, which breathes a sigh of relief hoping credibility
to return, as London still controls major world trading of bullion to metals. No
less a shock it was for India as it has been talking to Truss since she was the
relevant minister for carrying on talks for free trade agreement (FTA) hoping
to export more and earn hard currency.
A super 13.3 per cent inflation
driven, jobless, uncertain British economy was a bit too much for Truss to manage
through populism of tax cuts and other sops. Perhaps more than that Truss does
not know how to manage her own MPs, after she defeated Rishi Sunak, all Sunak friends
were put out of the government. The fissure and her fast-shifting stance played
the worse. Neither populism worked in an economy having galloping inflation nor
she was able to remain firm on her decisions, normal attribute of politicians.
She collapsed but sent a signal that those indulging in populism needs to have
abundant caution as with her the industry, investor and the stocks go tizzy.
India that has been priding itself
of replacing the UK as the fifth biggest economy is itself in a shock, whether
it has surpassed the UK or something left to be done. Rarely before a premier
of six weeks has shaken not only its economy but also major world currencies. One
wonders whether her persona was so weak or the Russian President Vladimir Putin
and US President Joe Biden tangle in NATO supported Ukraine war took her toll.
The European crisis is not easy as the EU does neither know whether to jump into
the war or face an unprecedented energy crisis. Biden-Putin duo’s animosity triggered
sanctions ensure that the continent instead of renewable energy goes back to coal
and other fossil fuel.
The plunging currencies amid 8.2 per
cent inflation are the other shock. The sterling pound is crashing against a continuously
rising dollar. So is the Euro. Have they become lackeys of the US? The US
despite its economy not in the pink, faces uncertain market and the NATO
countries stare at unknown future.
True, the US dollar holds the sway
but countries like India is taking baby steps to look beyond. Amid rising purchases
of Russian crude oil, a Russian bank opens an account in India’s Yes Bank in September.
Saudi Arabia and India discuss rupee-riyal trade. The State Bank of India
advises Indian exporters to avoid trade in dollars with countries like
Bangladesh. Many nations are looking at alternate currencies to the dollar,
which still enjoys dominance in the global market and reserves.
The International Monetary Fund says
despite the dominance the dollar is losing share in global foreign exchange reserves
from about 72 per cent in 2000 to about 60 per cent in 2022. Major currencies
gaining share are Euro, Pound and Chinese renminbi. Recently, India’s Chief Economic
Advisor V Anantha Nageswaran said that while weaponisation of currencies or
forex was the current trigger for countries to explore alternate arrangements,
internationalising the rupee was a “logical evolution”.
In a limited way, the rupee is
accepted in Vietnam, Indonesia, Paraguay, Chile, Costa Rica and Hungary. Indian
rupee is considered equivalent to 305 Vietnamese dong and 192.11 to Indonesian
Rupiah.
India is majorly using roubles to
buy crude oil from Russia. It offers discounts, bears the transportation and
insurance costs. Oil purchases from Russia almost trebled from $5.3 billion in
2021-22 to $14.5 billion in just five months. The Russian share of total
imports by India rise from 2.5 per cent to 11.4 per cent, according to the
Commerce Ministry. Till 2019, 50 per cent of Indian payments to Russia was in
dollars. From 2021, with the S-400 air defence deal, it has risen to 53.4 per cent
of Indian transactions are in roubles and 38.3 per cent in dollars.
Britain remaining the politically
most unstable with low growth if not corrected sooner may lose even Indian
interest for having the FTA. The Indian perception is that the UK still has command
over the world economy. If that is lost the FTA would add little for India. Still
except for the juggled up total figures, the UK economy is stronger than many
economies.
Similarly, India still has about 86
per cent of the foreign trade in dollars – 86.6 per cent of exports and 86.3
per cent of imports. In other currencies it has trade in Euro, exports 7.4 per cent
and imports 8.8 per cent; other currencies (yen, renminbi, Canadian dollar,
Swiss franc and Australian dollar) 3.8 per cent exports and 3.3 per cent
imports; British Pound 2.4 per cent exports and 0.5 per cent imports; and Japanese
yen 0.1 per cent exports and 1.1 per cent imports.
India is trying to diversify despite
being anchored in dollar. With problems besotting the domestic market, slower
growth, though apparently faster than many countries, inflation and limited job
opportunities, social angst subsided with free food dole to 800 crore people, despite
a tough road. Because of a strong Prime Minister Narendra Modi, it is gradually
sailing through with billions of rupee packages of infra-related programmes.
The major civic activities the government believes would lead the country out
of the covid pandemic induced morass.
Truss could not face a similar
situation and preferred to resign. It proved that it is not enough to be a
party leader without the team spirit and managerial skill. That is keeping India
passing through the unsavoury phase. Modi hopes announcements of packages in poll-bound
Gujarat, Himachal Pradesh and Uttrarakhand are likely to lead the country to an
improvement.
The Economist in its review says
digitisation, successful start-ups and the green transitions have led India to
become the world’s fastest-growing economy, However, the climate, energy and
food crises; and a socio-political environment could be dampener in the country’s
bright prospects.
The UNCTAD lauds India’s continuing
free food drive and calls for cut in global food prices for ensuring food
security worldwide, especially in developing countries through the Black Sea
grain initiative, crucial for Europe and adjacent areas. This is expected to
keep currencies stable, so necessary for India facing high import prices.
The currency management and rupee trade
in larger areas being planned is likely to be panacea for a long-term solution
to the forex crisis and ensure a better future for the country.---INFA
(Copyright, India News & Feature
Alliance)
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