Unstable Rupee, Floundering Economy

July 17, 2012 3:17 pm
Features/ Articles, Focus
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Adverse sentiments by themselves are not the real source of the current problems being faced by the Indian economy, of which the weakening of the rupee is only one manifestation.

Surajit Mazumdar (surajit.mazumdar@googlemail.com) teaches Economics at the Bharat Ratna Dr. B.R. Ambedkar University, Delhi

The slide in the value of the rupee over the last few months, dramatic though it has been, is actually hardly surprising. This was an eventuality that has been likely given the trends in India’s external balances over the last decade or so (Table 1). In 2003-04, as a period of subdued industrial growth was ending, India had a current account surplus which was 2.32% of her Gross Domestic Product, greater than it had ever been since at least 1950-51. By 2011-12, this had turned into a deficit of the magnitude of 4.25% of GDP, which too is a post-Independence record by a wide margin. In other words, there has been an adverse movement of over 6.5 percentage points over nine years. Moreover, this has not happened suddenly – it reflects a more or less steady trend through the period.

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