RBI curbs on Forex outflows_Does it prove liberalization has failed?

[sangom]

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RBI has imposed curbs on forex outflows. Though GOI hurried in to dispel any chance of Capital controls, the rupee tumbles and the stock-markets crash.

Does this not mean that our 20+ years of the so-called "financial liberalization" has, finally, failed?

 

[prasad1]

The Nifty slumped 4 percent on Friday, marking its biggest daily drop in almost two years, as blue chips including HDFC Bank were hit across the board on fears U.S. stimulus tapering would trigger foreign selling and as the rupee hit a record low.
The Reserve Bank of India's measures late on Wednesday to restrict how much its citizens and companies can invest abroad also raised fears of outright capital controls that would further undermine the confidence of foreign investors, hitting the rupee.
"FIIs (foreign institutional investors) may pull out further on continued concerns over Fed's potential tapering and as the rupee continues to make record lows," said Sachin Shah, a fund manager at Emkay Investment Managers Ltd.

Financial Liberalization refers to deregulation of domestic financial market and liberalization of the capital account.
How does tweaking mean failure?

Does this not mean that our 20+ years of the so-called "financial liberalization" has, finally, failed?

In India Financial Liberalization was always controlled (politically).

 

[sarang]

Poor guy, rajan. He is taking the country to permit raj - licence raj days! Ban on imports of gold, limit on fund transfer and investment; black routes will have a field day. Politicians and middlemen will be the beneficiaries.

RBI has imposed curbs on forex outflows. Though GOI hurried in to dispel any chance of Capital controls, the rupee tumbles and the stock-markets crash.

Does this not mean that our 20+ years of the so-called "financial liberalization" has, finally, failed?

 

[Delhi6]

Liberalisation has not failed. It is the inept handling of economy by UPA-2 as well as hyper consumption of middle class (moi included) that has brought us to this point.

As far as the black friday on Dalal Street, I think much of it has got to do with the exit polls yesterday and its effect. I suspect worst is yet to come in market. Once US Fed ACTUALLY starts Q E tapering, there is going to be a carnage on the street.

 

[mkrishna100]

Liberalisation has not failed. It is the inept handling of economy by UPA-2 as well as hyper consumption of middles class (moi included) that has brought us to this point.

True

 

[sarang]

today's onion exchange rates

dollar = 765 gms (4 medium size)
euro = 1.15 kg (6 numbers)
pound = 1.20 kg
yen = 8 gms (skin)
inr = skin + whiff
sensex = 258 kg (4 average indians)

 

[vgane]

Now we have Gold going back to heady days @ Rs 31090 (24K Gold per 10 grams)..With all the high import duties I wonder why we still go and buy gold

I think we need to reduce appetite for Gold in these tough times and help the economy to control the current account deficit

 

[prasad1]

India's gold demand could reach a record 1,000 tonnes this year as consumers buy for the festival and wedding season in the second half, the World Gold Council said, which may scuttle the country's efforts to curb its imports and a trade deficit.
Gold demand from India, China could hit record 1,000 T each in 2013 - WGC | Reuters

 

[kunjuppu]

Now we have Gold going back to heady days @ Rs 31090 (24K Gold per 10 grams)..With all the high import duties I wonder why we still go and buy gold

I think we need to reduce appetite for Gold in these tough times and help the economy to control the current account deficit

unfortunately, no matter what, there is an upward spiral for gold demand.

when things get going good, there is enough money, and more gold is bought.

when things get going rough, whatever cash is saved, is put into gold, as there is no faith in the currency value.

india's appetite for gold is unending and endless.

 

[sangom]

dollar = 765 gms (4 medium size)
euro = 1.15 kg (6 numbers)
pound = 1.20 kg
yen = 8 gms (skin)
inr = skin + whiff
sensex = 258 kg (4 average indians)

Shri Sarang,

I don't know how you have calculated the exchange rate for sensex. Can you kindly elaborate?

The rupee-USD rate which was 17 rupees to the $ just before these liberalization measures and 32 in 1995 immediately after 1995, has now come to 62. Does this not mean that nearly three-fourths of all the wealth (goods and services) produced by our masses have lost their value in monetary terms? In other words, money from India and Indians has gone to foreign hands (may be our own people with black money). I feel this is daylight robbery and a very unpatriotic act.

 

[prasad1]

Shri Sarang,

I don't know how you have calculated the exchange rate for sensex. Can you kindly elaborate?

The rupee-USD rate which was 17 rupees to the $ just before these liberalization measures and 32 in 1995 immediately after 1995, has now come to 62. Does this not mean that nearly three-fourths of all the wealth (goods and services) produced by our masses have lost their value in monetary terms? In other words, money from India and Indians has gone to foreign hands (may be our own people with black money). I feel this is daylight robbery and a very unpatriotic act.

The Rupee that was at that rate is different than the rupees of today. Currency has a time value it is not static. The Rs 17 of 1970 on a cumulative interest would have earned much more than Rs 17. So I do not know what you are talking about?
If you had bought gold (selling at Rs3000/oz) with your Rs 17 = $1 you would be worth Rs 30000/0z so it would be 10 times. Compare that to Dollar has only multiplied only 6 times. So I do not understand who robbed whom?

 

[venkat2206]

This is a price the country's citizen have to pay for being part of the World's largest democracy. Two party system is not prevailing in the country and any Government has to depended on smaller parties - Coalition partners. Depending on political development, ruling party and opposition gets changed. Basic principles of two main parties are the same.

ONLy a Government by one / two political parties, with an absolute comfortable majority of its own will be able to bring true liberalization.

Even if Congress and BJP decide to form an alliance, thereby marginalizing all other smaller parties, it will be a good move from the country's point of view.

Venkat K

 

[biswa]

Gold is the ultimate non-productive asset. Unfortunately it still makes sense to invest in gold in India because of the perennial inflation and monetary dilution that has plagued the country.

 

[Brahmanyan]

RBI has imposed curbs on forex outflows. Though GOI hurried in to dispel any chance of Capital controls, the rupee tumbles and the stock-markets crash.

Does this not mean that our 20+ years of the so-called "financial liberalization" has, finally, failed?

Dear Sri Sangom,

No doubt about it. The current results show that the economic policies of Dr. M M Singh's Government have failed miserably. The text-book economists have ruined the Nation by their experiments and reduced the honest citizen to depend on freebees from Governments. The value of Rupee is less than the paper on which it is printed. The prices of gold and essentials have breached the law of gravitation. The openingup of FDI has allowed flow of Forign Exchange inside and outside giving free hand to determine our exchange rates to these forex investers. Now the RBI has woken up to reality and imposed curbs on forex outflows.

Let us wish best of luck to the new RBI chief.

Brahmanyan,
Bangalore.

 

[vgane]

I do not think that Government has a clear cut action plan for the economy which is stifled by the triple whammy of high inflation, low growth and falling Rupee

It is reactive than being proactive

What we see is knee jerk reaction

And to cap it the PM and RBI Governor spar over the RBI's policy in pubic

 

[sangom]

Dear Sri Sangom,

No doubt about it. The current results show that the economic policies of Dr. M M Singh's Government have failed miserably. The text-book economists have ruined the Nation by their experiments and reduced the honest citizen to depend on freebees from Governments. The value of Rupee is less than the paper on which it is printed. The prices of gold and essentials have breached the law of gravitation. The openingup of FDI has allowed flow of Forign Exchange inside and outside giving free hand to determine our exchange rates to these forex investers. Now the RBI has woken up to reality and imposed curbs on forex outflows.

Let us wish best of luck to the new RBI chief.

Brahmanyan,
Bangalore.

Dear Shri Brahmanyan,

Though I worked in a bank for 30+ years, I have not studied economics. But having read a book by Dadabhai Naoroji about British colonial actions in plundering and impoverishing India, it seems to me that the wealth produced by the masses' sweat and blood in India, is being systematically devalued in terms of foreign currencies (which means foreign buyers) and in this way, our real wealth is being taken out of the country.

Shri Prasad writes about investing in gold. Obviously, people in India -even the poorest sections - prefer one or two grams of (ornament) gold, precisely because of this only. Even FD in bank would not have compensated for the devaluation. It is relevant to bear in mind that West Germany was very particular in keeping devaluation of its currency at bay, for a long time.

Our stock markets, it seems, act as the device for the mischief-makers to skim India's economy and take away the cream, periodically.

 

[auh]

It is very difficult to bolster the rupee, in the long run, by one or two measures; it would take a reform, and a sustained approach first.

Probably the wealth of India (agri based resources) has not been made effective use of by any Govts. Instead we have shifted to expand our services industry, mainly based on IT, to bolster our forex inflows. FDI, is another. This is primarily to bridge the deficit in the forex inflow, with the outflow - a sort of natural hedge. Our imports are varied and that impacts us quite heavily, esp with the rupee on a nosedive; primary imports being coal, oil etc (energy related), I think.

To curtail the imports we have to become:

1) An energy sufficient country, or
2) Use energy optimally.

We are trying to do 1 while failing miserably in 2. The mischief had already been done, imo, when the GOI subsidised petroleum and gas in the crazy hunt to keep up with the modernized countries. Yes, we have probably achieved that, but at a cost! We have all the latest electronic gadgets, but no electricity to run them. A section of the society enjoys extreme luxury while one section can hardly find one square meal per day.

All our policies have failed to achieve a growth that reflects our wealth, and is sustainable. A growth that makes us strong.

I want to stop now and say that we were unprepared for liberalization when it happened.

P.S. I believe that the BSE is a manipulated number (and I never trust in it).

 

[sangom]

< snipped >
I want to stop now and say that we were unprepared for liberalization when it happened.

And we were equally unprepared and unfit for democracy and freedom when those happened, too.
In short, all premature aging!!

 

[prasad1]

And we were equally unprepared and unfit for democracy and freedom when those happened, too.
In short, all premature aging!!

Let me sum up:
We are unfit to be human, so deal with it.
(tongue in cheek).
We are what we are, we have to play the hand we are given. No body said that life is bed of roses, there are some thorns.

 

[kunjuppu]

i still dont understand why people attach so much 'sense of pride' to the value of the rupee vs dolla.

the more the rupees, the easier it is for us to export. japan china taiwan all keep their currencies artificially low, ie high rate for the dolla. it makes exports cheap and imports expensive.

the floating value of the rupee is an inborn automatic economic's way of adjusting to realities - and there is no value of pride in it. just plain economics. what we need is more export and more jobs. the only ones who should really worry about the value of the rupee vs dolla, are those from india planning abroad trips or foreign education. the vast masses shouldnt care.

 

[sangom]

i still dont understand why people attach so much 'sense of pride' to the value of the rupee vs dolla.

the more the rupees, the easier it is for us to export. japan china taiwan all keep their currencies artificially low, ie high rate for the dolla. it makes exports cheap and imports expensive.

the floating value of the rupee is an inborn automatic economic's way of adjusting to realities - and there is no value of pride in it. just plain economics. what we need is more export and more jobs. the only ones who should really worry about the value of the rupee vs dolla, are those from india planning abroad trips or foreign education. the vast masses shouldnt care.

Shri Kunjuppu,

From your above post it becomes clear as to how far removed from the ground realities of India you are. May be you are getting a bird's eye view of the country during your visits and otherwise, but the rupee-$ value immediately causes petrol & diesel prices to go up and since the PDS is pathetically weak, everything from common salt to camphor (உப்பிலிருந்து கர்ப்பூரம் வரை - as the saying goes) become costlier. I could also have taken a non-chalant attitude like your good self or Shri Prasad, if I were one of the upper classes in India, like Rahul Gandhi (poverty is a state of the mind) or Montek Singh Ahluwalia (Rs. 40 lakhs for his office bath room). Unfortunately, I am not and I feel, even now, that there will be a few members here who may find these price increases and therefore the rupee-dollar rate, of importance to our daily lives.

If I am wrong in this, my apologies.

 

[sangom]

Let me sum up:
We are unfit to be human, so deal with it.
(tongue in cheek).
We are what we are, we have to play the hand we are given. No body said that life is bed of roses, there are some thorns.

Why show such intolerance, Shri Prasad? We are a poor people in a poor country telling our woes here because Shri Praveen has not yet banned this like another name. If this is also uncomfortable to you and Kunjuppu, the conclusion will be that this is an elite club of Richie Richs. Do you people think Thevar-Pallar hostilities is good for discussion but price increases are not?

Anyway, I am truly disappointed with your quoting Kabirdas and making snubbing posts like this one.

 

[vgane]

i still dont understand why people attach so much 'sense of pride' to the value of the rupee vs dolla.

the more the rupees, the easier it is for us to export. japan china taiwan all keep their currencies artificially low, ie high rate for the dolla. it makes exports cheap and imports expensive.

the floating value of the rupee is an inborn automatic economic's way of adjusting to realities - and there is no value of pride in it. just plain economics. what we need is more export and more jobs. the only ones who should really worry about the value of the rupee vs dolla, are those from india planning abroad trips or foreign education. the vast masses shouldnt care.

Every 1 % depreciation of the Rupee results in 6-8 basis points increase in inflation (1% =100 basis points)

With such a direct correlation in India, Inflation calls for strong measures such as controlling the money supply..For this RBI is forced to increase interest rates...This causes a chain reaction and stifles growth

We are now caught in a vicious cycle

It requires tough decisions and lots of patience ...Not sure if all this would make sense in an election year

 

[prasad1]

Why show such intolerance, Shri Prasad? We are a poor people in a poor country telling our woes here because Shri Praveen has not yet banned this like another name. If this is also uncomfortable to you and Kunjuppu, the conclusion will be that this is an elite club of Richie Richs. Do you people think Thevar-Pallar hostilities is good for discussion but price increases are not?

Anyway, I am truly disappointed with your quoting Kabirdas and making snubbing posts like this one.

Sir,
My post was in reply to your post lamenting that India is not ready for democracy, and Indians are nor capable of handling their affair. I can understand that from a Pakistani, but coming from you it seemed like a tantrum.

India and Indian do not need pity, but some backbone to stand up. Yes the import of energy sector does add to the inflation, but like Mr. K said in India inflation is rampant and is not because of energy cost alone.

Logically, what is happening is, due to inflation in India prices are going up crazy and the effective buying power of a rupee is decreasing. People who work in IT companies in India, get Salary hikes ranging from 15% to 30% every year, where as in America the average hike per year in salary is around 3%. The logical reason for the disparity in the hike is the inflation.

Just put in the inflation rate, time period and current value to get the real value. Inflation eats away the purchasing value of the rupee. So, investors must ensure that their investments are growing at a rate higher than the rate of inflation. Any return less than the average inflation rate will make your investment portfolio weaker in real terms.

 

[Iyyarooraan]

If the government cannot think in terms of man in the street and his pocket, is definitely going to be bankrupt. If stock market is buoyant it is because of the common man and the state of his life. If he stirs up and becomes apprehensive of being disturbed the stock market goes tumbling down. It is very surprising that even in 2013 people talk of "globality" but think of "individuality".