Date: 30/08/2013


Sent: Thursday, August 29, 2013 2:08:46 AM
Subject: India's currency crisis

If there is fire why would any one throw gasoline at it especially when the price of gasoline is very high and is going up ?

That is precisely what SoniaG's team is doing in India.
There is much talk of current account deficit and even Finance minister now admits government polices have some thing to do with it, of course he cites the period when Pranab Mukerji was Finance Minister. He had plenty of time to fix it . Current account deficit is only a symptom. Malady is deeper, rooted in policies. Though he was critical of them attributing to his predecessor, yet precisely same measures of limitless government spending via Food Security bill is enacted under his watch just few days back ! Food Security billis nothing but a vote bank policy -------

While it is true that there are factors beyond borders of truncated India, do see the article below in this regard, one does not have to throw gasoline at the fire , to hasten the economy towards collapse which we saw in 1991 that required India to hock its gold reserves to Bank of England.

Other measures of SoniaG's finance minister include retroactive taxation of corporations who have invested in India , who already are losing faith in Indian economy . This also hastened their withdrawal of investments in dollars from India.

Vinasakale viparitha buddhi As if such measures that exacerbated the crisis affecting the Rupee and economy are not enough, the SoniaG team is eyeing gold held by people of India. Actually the people, the Aam, Admi are proved to be more accurate in reading the economy than those holding reins of power over it in New Delhi. Indian people's traditional trust in having gold rather than trust Rupee based assets is proved correct with rising value of former and collapsing one of latter.

More over who would trust the SoniaG's team with their gold that they will part with it ? We need not elaborate on this aspect of trust deficit when in words of Rajiv Gandhi, hailed as Mr. Clean that only 20% of all government spending ever reaches people while 80% is swallowed by corruption. Thus the boondoggle of Food Security Bill of SoniaG will only help enrich only HTFC ( Hawala Transfer Finance Corporation (Vide Cyrus Broacha, TWTW) bankers and their clients.. And Food security bill is going to spend some billions of dollars worth of Rupees which UPA govt does not have !

Like India which has age old adage noted above, Greeks also have one that says if Gods want to destroy some one they will grant his wishes. So wish of SoniaG for Food Security Bill is granted by parliament !

It is no comfort saying that India is not alone in this regard. Actually India should be and could have been an exception .

Consider these two instances .

1 . India is world's third largest producer of Coal. Yet coal is imported.

2 . At one time India was producing 70% of its oil needs, now more than that is being imported.
These two are enough to drive down the value of Rupee. Sure economists can come up with all sorts of explanations with numbers, graphs . But since we are not economists we can use common sense to conclude that such replacement of indigenous production with imports is directly related to commissions involved. Otherwise by this time India would have Light Combat Aircraft, made in India.

Fortunately now, almost every one is saying that UPA government should go. And Vox Populi is also saying, sooner the better. Hope that disenchantment, resentment translates into votes supporting alternative Sri Narendra Modi.



India Currency Crash Reflects Emerging Market Woes
Thu, Aug 29 2013 00:00:00 E A01_A1

Posted 06:47 PM

India's rupee suffered its worst one-day loss in nearly two decades Wednesday, with emerging markets continuing to struggle as Federal Reserve taper fears and Syria concerns exacerbate underlying economic problems.

India's currency fell as much as 3.7% vs. the dollar to a new low. The rupee rebounded somewhat after the Reserve Bank of India said it would sell dollars directly to state oil companies. Spiking prices of oil one of India's biggest imports exacerbate its and many other developing nations' issues over rapidly rising inflation and shrinking profit margins.
Rupee Rupture

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The rupee has collapsed 24% against the dollar this year the most in Asia amid a litany of economic woes. GDP growth has halved in the past year, while the government has pursued market reforms half-heartedly.

The rupee's crash amplifies foreign investors' stock losses. The MSCI India Index has fallen 8.5% in 2013 in local currency, but 24% in dollars.

Emerging market stocks have underperformed developed mar kets for more than two years. They've failed to regain their 2007 high, unlike U.S. stocks, despite superior economic growth .
Trade deficits in recent years have ballooned in India, Indonesia, Brazil, Turkey and South Africa. Imports jumped on domestic demand while exports to ailing Europe shrank.

"The drag from their current accounts is dragging down their own growth, and as their growth weakens the capital that's needed to fund that current account deficit is flowing out," said Srinivas Thiruvadanthai, research director at the Jerome Levy Forecasting Center in Mt. Kisco, N.Y.
The Fed has injected trillions of dollars into the U.S. economy over the past five years, but much of that flowed into emerging markets. Now, with the central bank poised to slow its bond buying and Treasury yields rising, the capital has been rushing out. The hot-money exodus lays bare structural problems, such as poor infrastructure, rife corruption and layers of red tape.

Central banks have hiked interest rates to try to prop up their currencies, but that curbs borrowing, further deteriorating growth prospects. All the while, banks reduced lending to emerging-market borrowers to scale back risks in the wake of the financial crisis.

Investors should brace for more volatility next month amid a flood of potentially market-moving events, including Germany's election and the Fed meeting, said Anton Bayer, CEO of Up Capital Management in Sacramento, Calif., with $160 million in assets under management.
"Compound that with political upheaval, and investors may unwind their riskiest investments," Bayer said.

Bayer dumped his emerging markets holdings in December 2010, seeing U.S. import and export growth peak. He also expected that the safe-haven dollar would rally as global economic growth slowed, thereby "limiting the value of emerging market commodities and their ability to export."
Emerging markets are adjusting as key drivers of a 15-year bull run low rates and heavy Chinese commodity demand wither, Bank of America Merrill Lynch economists say.

"The outperformance of emerging markets over the past decade, kick-started by the 9/11 terrorist attacks and subsequent peak in the U.S. dollar and China's entry into the WTO (World Trade Organization), is now reversing," they wrote in a "Global Investing Strategy" report released Aug. 21. "And with current-account deficits (rising) again across emerging markets, the asset class once again looks vulnerable to a China or bond-market-driven crisis."

Interest rates, rising around the world, would have to fall for emerging markets to regain their bull run, the report added.

Indonesia's stock market, as tracked by the iShares MSCI Indonesia (EIDO), crashed hardest among emerging market ETFs this month. The ETF has plunged 24.4% to its lowest in 2-1/2 years. Indonesia's GDP grew less than 6% in Q2, the slowest since 2010.

The central bank lifted its policy rate 50 basis points to 6.5% in July and has taken other actions to try to control rising inflation, support the weakening rupiah and stabilize the financial system.
But its current account deficit widened to 4.4% of GDP in Q2 as foreign demand for commodities fell, especially from top trading partners China and India.

"As commodities (particularly raw ones) account for around 60% of the country's total exports, Indonesia feels the impact of the weak international market," R.M.A. van der Schaar, an analyst at, wrote Tuesday. "In the 2000s, Indonesia felt the advantages during the commodities boom. Now, however, it is feeling the negative impact."

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