Decisive govt action needed on eco front

The news over the weekend that the Organisation of Petroleum Exporting Countries will increase supplies in August by over four lakh tonnes shouldn’t lull the government into complacency in its efforts to shore up the rupee. The rupee has lost over 12 per cent since the year’s beginning, and the spike accelerated in August. India can’t afford to rely on Opec as that cartel’s decisions are based on their own needs. For example, the Opec countries had capped production for the past 18 months to send prices soaring. There’s no alternative in the immediate future but to curb imports of non-essential goods. There should be a steep hike in duties on these items, including smartphones and high-end cameras. India imported $21 billion telecom equipment, including mobiles, and we must ask if it’s justifiable. Gold imports also saw a spike to $33.7 billion as global prices fell.

On a positive note, exports must be encourgaed. While they rose 19.21 per cent in August, imports rose faster, by 25.4 per cent. The seriousness of this is implicit as value-wise exports were $27.84 billion, but imports for August were $45.24 billion — almost double. This has led to widening the current account deficit gap. This has been so since the financial year began in April. The time for thinking is over, what we need now is action.

The move to encourage foreign portfolio investments is unlikely to have much success. The recent US Federal Reserve move to hike interest rates have seen FPIs pull out investments to invest in their home markets which is a less risky option.

It’s true the rupee’s fall is also due to external factors, including rising global crude prices and the trade war unleashed by US President Donald Trump, and followed by the European Union and others. The Iran imbroglio is  also a factor for India, as Iran is India’s third largest trading partner in crude. America’s demand that India stop these imports by November is preposterous and smacks of neo-colonialism. There are other ways to check Iran’s nuclear intentions, instead of forcing the rest of the world to stop trade with Iran. Besides, India gets valuable concessions from Iran, which enables part payment for imports in rupees. Will the US compensate India for this, while expecting India to import expensive crude from the US? It will be interesting to see how India tackles this irrational US demand.

Going forward, this is an opportune time to provide an impetus to Prime Minister Narendra Modi’s “Make in India”. To begin with, India should start making items of daily use now being imported from China. Since price is the main factor, ways must be found to meet this challenge. A movement could be launched to make some of these products in rural areas too.