My take on the Dollar Rupee Conundrum

There has been extensive media coverage on the issue of the falling value of the Rupee owing to a strengthening US economy and deep fault lines in the Indian economic indicators. Continued media coverage is also fuelling the panic among Indian citizens and also to an extent Foreign investors.

The way media has been covering the issue, it seems that this is a huge shock to the Indian administration, and that the Polity in general & the business community in particular has been caught unawares.

Frankly, I am bemused.

To set the context, let us understand what happened during the time of the quantitative easing period. In order allow Rupee to be reasonably depreciated, the government allowed free imports of electronics, and all sundry items that you could think of. This led to a deluge of imported goods (a lot of it needless viz gift items, gold, flat tv’s etc) .

This was fine, but, since there was no clear policy on creating the necessary ecosystem(Infrastructure, Policy framework, Sops) to allow a mature manufacturing sector to develop, a huge systemic imbalance was created.

This led to an excessive reliance on imported goods (as above) and services(Google, Blackberry etc). It fuelled a huge imbalance in the trade between India and individual countries like China, Taiwan, USA, Russia, Thailand etc. In fact each FTA that the Indian government has signed in last 10 years has led to a widening trade deficit with each of those countries. Hardly any FTA has actually resulted in benefitting Indian trade.

Also, a strengthening of the INR along with policy paralysis, led to a slowdown in the export manufacturing & services economy. Sectors like Leather, handicrafts, capital goods, BPO were all hit hard, and the growth went to countries like Romania, Philippines, Thailand, bangldesh etc. To add to this, the Indian government’s target of kick starting a revolution in the Indian Electronics manufacturing has largely been a non-starter. I can’t think of 5 big names that India has produced in electronics, whose manufacturing base in India. Almost all electronics/home appliances based brands are relying heavily on imports.

Add to this the borrowing binge the corporates/banks went on, to raise foreign capital in 2008-2010. It was a crystal clear even then that once the US Economy starts recovering(the green shoots were visible early last year with US unemployment data and housing market receoveries), and when the QE would start being withdrawn, along with the maturity of global corporate/bank Bonds, the Indian rupee would come under tremendous pressure.

Hence, one thing is clear, any economist who had even basic reading of the Indian economy knew this was going to happen. I had received early indications of Rupee facing massive volatility before settling down between Rs 70-75 to a dollar within a year. Analysts even at the lower rung of the establishment, were aware of the same. This research was shared as early as in January 2013.

This is the reason, why while the fall of the rupee is talk of the town, hardly anyone is seen crying owing to the same. In my view, most of the importers had already hedged their exposures (those who didn’t, really don’t have a good understanding, or stupid advisors). Most of the punters had already gone short on the equities, and heavily bet on Gold over past 2-3 months.

Given the above context, I am of the opinion, that the fall of the rupee is a carefully orchestrated event, played by the mandarins who run south bloc.

I sincerely believe, while it will hurt us immensely in the short run, in the long run, it may actually kick start the export led economy. However, for it to happen, our government needs to start implementation of Export sops along with manufacturing incentives to domestic investors, who can help put the exports back on track. Services exports will also become immensely competitive, and we may be in a position to get business back from countries like Bangladesh, Thaliand, Philippines & China.

Import controls, will take away bulk of the unnecessary imports, and will make the electronics giants like Sony and Samsung, sincerely consider setting up manufacturing lines in India for their electronic goods.

However, for any of it to make an impact, we need to wait for atleast 18-24 months. In this time, a clear mandate for the new regime will be visible, aftershocks owing to rupee(Price increases, real estate bubble burst, equity crash etc.) would have settled down, new export capacities would have come in and hopefully we will start hearing from foreign investors on big ticket investment projects in India.

And I fervently hope that, having learnt from this turn of events, our new government would take proactive steps to restrict Google, Apple, Yahoo, Wechat, facebook, Whatsapp, Blackberry, Belkin, Chinese electronics giants; who have already entrenched themselves into every data point in  our lives. If this goes on, they are and will securely be in a more dominant position to control us over next 3-4 decades.

In my considered opinion, this is the real threat to India in the 21^st century.

With all the bad press about China’s restrictive policy on Google, Apple may have created; one thing is for certain, China has insulated itself by having its own internet fiefdom, Media conglomerates, automobile manufacturing, trade services, Mobile telephony, mobile applications & Aerospace.

In the event of the world going to a war, while India has to be a slave to US, Russia, Middle east & EU for all Internet, Communication tools, Oil & Defense supplies, China will be completely self-reliant with only having to secure Oil lines from the Middle East & few other countries, where it has already setup a robust network to ensure reliable supply lines in the worst case scenarios.

So, to sum it up, forget the brouhaha on the fall of the rupee. It is a planned move. Just try to keep your head above water for the next 18 months, and you should be fine.

And to the Media, while marketing your channels through fear mongering, please take up the real issues, like the internet infrastructure, population database & web based communication lines in the digital age which have all been conveniently sold to foreigners.

Namo Mantra Vs the Old Guard

I have been following the television news channels, since the BJP National Executive began. With all the clamour going on over the past few days on the news, with Advani no show, Narendra Modi being elevated to Campaign chairman to now Mr Advani resigning; I would like to throw a different perspective to the saga.

I think that the frantic activity within the BJP over the past few days are not a surprise to all the senior BJP functionaries. It is all a part of the natural tectonic shifts in the corridors of power of the Bharatiya Janata Party.

Since the time Narendra Modi won the Gujarat election, he had made his ambitions very clear. Subtle signals of his ascension in the BJP were evident when he was suddenly allowed to project a national image, along with selective public engagements in different parts of the country like Kolkata & Karnataka.

For the BJP to really do something meaningful in 2014, Mr Modi has made it very clear to the people who matter(RSS), that he needs total control. This is the only way, he can go beyond old loyalties and ruthlessly deal with countering congress in every state in the country.

It is jocular to believe that the BJP top people(Rajnath Singh, Arun Jaitley, Sushma swaraj et al) didn't know that if they annointed Modi as the campaign chief, then Mr Advani would resign. I would like to believe that they have taken a considered view that whatever be the cost, they have no choice but to annoint Mr Modi as the campaign chief, as without him, they do not stand a chance. More so, as the common man of the country today believes him to be the most natural leader within the BJP.

Consider this, with Mr Advani resigning, and his loyalists marginalised, Mr Modi & BJP has the following benefits :

1. Much less intervention from the advani camp in rolling out his plans.
2. An Advani from the outside can do much less damage than he could do from within the BJP.
3. Some of his loyalists may switch over to the pro modi camp, to ensure a meaningful existence within BJP
4. Such noise in the Media will die down within 2-3 months, when Mr Modi can start raking up other more relevant issues facing the common people of the country. Within this time, Mr Modi can also make the necessary organisational changes.
5. Most importantly, there will be clarity. Whether good or bad, BJP will know that they have to swim or sink with Mr Modi. This will ensure most of the people on the ground to fall in line with whatever Mr Modi wants executed.


With regards to the NDA, there could be several permutations & combinations which Mr Modi would have taken into account while taking the above decisions. Addition of parties like :
1. Jayalalitha
2. Mamata Banerjee
3. Jagan (Telengana creation has already been announced by the BJP)
4. BJP gaining on its own in UP, Bihar, North Eastern states
5. Possible increase in vote share in other pro hindu belts
6. Akali Dal has already made enough noises about being in support of Namo
7. Bringing back Yedurappa in Karanataka

With the above major metrics in place, losing an ally like the JD(U) can be countered effectively and a new front can emerge as the NDA.

To sum it up, while the noises in the Media may make it sound like Advani resigning is a loss in the short term, I would like to believe that this is extremely good for the future of BJP, and actually improves its chances in the 2014 polls.

Perhaps Goa is indeed lucky for Narendra Modi!