The rupee, meanwhile, saw a steep fall in its value vis-à-vis the US dollar. It was previously overvalued, judging by real effective exchange rate calculations — but it is nevertheless the case that a 20% depreciation over just four months has delivered serious shocks to the system. Meanwhile, as global markets slow, it is far from certain that the usual beneficiaries of a weaker rupee — India’s exporters — will be able to gain. Imports, however, will become more expensive, thinning corporate margins and making inflation harder to control. Another headline number that reveals poor macro-economic management is the current account deficit (CAD). At the time of the 1991 crisis, India’s CAD was 3% of GDP. That figure looks modest in comparison to the 3.6% of GDP the economy posted for the first half of the current year. Slowing export growth as seen in the last couple of months means keeping CAD at last year’s level of 2.6% appears difficult this year. Then, of course, there is inflation, which continues to hover around 9%.
The macro-economic mismanagement these numbers reveal is reflective of poor management all through. The coal sector has been hit hard by political troubles, environmental red tape and land acquisition norms. Only 9 km of roads are built a day — as opposed to a target of 20 km. Every kind of major legislation has been on hold: pension reform and the companies Bill. Even foreign direct investment in multi-brand retail, which did not require Parliament’s approval, has been shelved.