Plummeting rupee and rising fuel prices spell trouble for the economy. But what does that mean for the Government?

The headlines are worrying, and in many other countries, there would be large protests in every major population centre, maybe even violent riots. But petrol and diesel prices are rising, the value of the Indian rupee has gone down and the stock markets are crashing. Economic sentiment is being affected across the board, sales of durables and capital goods are down, and while some numbers are looking positive, the deep state of rot in the banking sector is dragging sentiment down further. The Finance Ministry and the Reserve Bank of India are desperately trying to plug holes in the economic ship, but water is still coming in but to use an analogy, the pumps are straining and some have even become clogged. So what next? The problem is that no-one really knows. The President of the United States, Donald Trump with his ‘Make America Great Again’ program has been acting interests he feels inimical to American interests and while India has not been in his crosshairs as yet, the fact is expecting improved trading relations in the current environment is wishful thinking, as is evident in the difficulties India is facing with importing cheaper crude from Iran, a nation that has been hit by Trump-initiated sanctions. At the same time, the outflow of foreign currency to oil exporting nations has shot up and India’s constant imports of goods from China has become a massive problem that policy makers have failed to address, killing the competitiveness of Indian manufacturing.

While any move to impose higher import duties would help the government recoup some of the losses from any duty cuts in fuel prices and could even give a small fillip to local manufacturing, this will only be a drop in the ocean. The issues with the public-sector banks and their huge outstanding loans will not disappear and with the economy behaving the way it is, it is more than likely that things will get worse before they get better in that sector, as the recent failure of IL&FS has proven. The opposition that has been stridently attacking the government through countless columns and press conferences is also short of answers and one reason for that is that they let much of the rot set in between 2010 and 2012. Now is not the time for partisanship, the problems in the economy will not disappear overnight no matter who wins in 2019, or whatever the results later this year in some states will be, the time for politicians to work together to solve these issues is upon us.