THE DE­SCENT OF­MONEY

Higher in­fla­tion looms and cor­po­rate prof­its come un­der pres­sure as the ru­pee threat­ens to touch 60 to a dol­lar

India Today - - ECONOMY -

ously an­tic­i­pated. One of the ma­jor causes be­hind the ru­pee’s fall is the ‘ sen­ti­ment’ in the mar­ket. “There is in­creas­ing risk- aver­sion. With the end of a long pe­riod of earn­ing money, peo­ple are get­ting back from risk, and pulling out dollars,” says Ja­mal Meck­lai, CEO at Meck­lai Fi­nan­cial. “In­dia does not present a man­age­ment which is in charge. The neg­a­tive sen­ti­ment is now at its high­est.”

The ris­ing cur­rent ac­count deficit is an­other fac­tor. In­dia’s cur­rent ac­count deficit— its im­ports of goods and ser­vices are more than its ex­ports— is es­ti­mated to be around 5 per cent of the gross do­mes­tic prod­uct ( GDP) in 2012- 13, com­pared with the pre­vi­ous year’s 4.2 per cent. The gap had widened to a record 6.7 per cent of GDP in the Oc­to­ber- De­cem­ber quar­ter.

The Govern­ment had at­tempted to con­trol the cur­rent ac­count deficit by tar­get­ing gold im­ports by way of rais­ing im­port duty from 6 per cent to 8 per cent. But this hasn’t helped. “Peo­ple will con­tinue buy­ing gold, since they need it. What the Govern­ment should in­stead fo­cus on is bring­ing the vast amount of idle gold into the mar­ket.” Of the 800- 1,000 tonnes of gold im­port, 40 per cent is jewellery while the rest is in­vest­ment, he says.

Ac­cord­ing to a re­search note from Care Rat­ings, a change in for­eign ex­change ( forex) re­serves is a fun­da­men­tal driver of the ru­pee right now. A de­cline in forex re­serves re­sults in weak­en­ing of the cur­rency. In­dia’s for­eign cur­rency as­sets, af­ter in­creas­ing in the months of March and April,

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