India has one of the largest and fastest growing economes. It is one of the members of BRICS and forms a part of G-20. With a huge population, India now faces a high Inflation rate of 9.39% (CPI) as in April 2013 and a high CAD (Current Account Deficit). Eurozone crisis and in-house politics worsen matters further. Is all well in India? A brief & closer look at what is happening in the country.

1. Is India heading for a grave Economic Crisis?
(A small outline as to why India might be heading
towards a silent storm & a special focus on the
falling rupee)
© 2013 Deena Zaidi. All rights reserved.

2. Reasons for the Crisis
• Since 2009, the Indian inflation rate has galloped.
• India's exchange rate is overvalued.
• Rupee appreciated against the Yuan by about 25 %.
• India's trade deficit today is almost twice as large as the Mexico Crisis in 1944.
• Export growth has come to a virtual halt over the past year.
• The top 10 borrower groups now account for 13 % of banks' outstanding loans.
© 2013 Deena Zaidi. All rights reserved.

3. © 2013 Deena Zaidi. All rights reserved.
Reasons for the Decline of the Rupee

4. Reactions ByThe Finance Ministry
40.26
45.99 47.44 45.56 47.92
58.33
0
10
20
30
40
50
60
70
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013*
AverageExchangeRate(Rs/US$)
YEARS
( *2012-2013 exchange rate is rate as on 10th June 2013)
Average Exchange Rate (Rs. /US$)
Even though rupee continues to fall, the
Indian finance ministry feels there is little
need for markets to panic. Even as
concerns over CAD (Current Account
Deficit) loom over India, especially at a
time when policymakers are trying to pull
up growth, Raghuram Rajan, the country's
chief economic advisor, feels that the drop
could be a temporary phenomenon. Both
the government and RBI are taking steps to
curb gold import in wake of widening
CAD, which in turn puts pressure on rupee
value.
© 2013 Deena Zaidi. All rights reserved.

5. • Loss of confidence amongst investors resulting in market panic
• Falling rupee leading to costlier commodity imports in local markets
• Failure to address the issue at the right time by RBI
• Foreign Institutional Investors who are buyers suddenly might turn into sellers
causing RBI intervention causing a market stir
What can worsen matters further?
© 2013 Deena Zaidi. All rights reserved.

6. Reactions from the Indian
Media
 The Times of India says the rupee is "the most
battered" of the Asian currencies and its fall can be
attributed to India's "significantly larger current
account deficit".
 The Hindustan Times feels the rupee's fall can "end
up fanning inflation“.
 The Tribune, however, says that Indian
exporters, including IT firms and drug
manufacturers, are likely to benefit from the fall.
 The Asian Age believes the currency's record
decline should be a "wake-up call" for the
government which must "stop paying lip service"
and take concrete actions.
© 2013 Deena Zaidi. All rights reserved.
Source: just-a-few-lines.blogspot.com

7. What keeps India safe after all this?
India's long-term growth drivers are intact, the
demographic dividend, young population, capacity
levels and rising productivity levels could lead to
higher and faster growth rate. "The economy's
outlook is weak, however, and the currency will
remain vulnerable to periodic policy setback and
global factors," Deutsche said. "But the major
sources of drag to the currency in recent
years, high inflation and high current account
deficit, are dissipating rapidly, and will help
support the currency."
© 2013 Deena Zaidi. All rights reserved.

8. Is it a Fool’s Paradise?
Reacting to a financial crisis and saying all is well is more like turning a blind eye towards an
approaching storm. The markets are in panic because there is information asymmetry. The
continuous fluctuation in prices of gold, oil and exchange rates reflect that something is not
going right in the Indian economy. It is true that the global crisis impact has its effects but
corrective measures without corruption & a strong political stability can lead to a stronger
economy. India with its strong central bank, RBI, has all that it takes to get the country out of
the crisis , if the need arises. But the action should be prompt and perfectly timed since ‘wait
and watch’ policy has ruined many nations in the past.
© 2013 Deena Zaidi. All rights reserved.