• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

When Uncle Sam sneezes, Indian markets cannot but catch a cold, as the Indian financial system is overexposed to American financial woes.

The good news is that there was $8.4 billion worth of net capital outflow from the financial markets in 2008 (as of September), meaning that the FIIs have mostly pulled out their ‘investments’. The bad news is that over $20 billion of investments’ still remain, which should also be taken out, thus bringing Sensex to a sensible level of 5000.

The biggest fall in the value of the rupee in a decade is a footnote to the crippling inflation which affects most those below poverty line. The disastrous experiment of treating FII fund-flows as engines of development should be given up, since FIIs are interested in trading in money as a commodity and least concerned about nation’s prosperity.

Instead, the old-fashioned method should be followed of getting specific wealth-generating projects which require imported technology through local entrepreneurs collaborating with MNCs. This is the route China took, with fast-track implementation of such projects.

The ongoing saga of the fall of the rupee (it has to fall further) is related to the simple fact of inflation and the resultant fall in the purchasing power of the rupee vis-À-vis, say, the dollar. Inflation is the result of mismanagement of the fiscal regime during the last four years since 2004, in utter disregard for the welfare of the farmers.

Remedy? Get the government off the backs of the people. Leave the economy to be managed by the trusted local guild-formations which have proven expertise in generating social capital and stellar individual initiatives, which have always been the hallmark of Indian economic activity, without waiting for government largesse.

S. Kalyanaraman e-mail

More Stories on : Letters | Financial Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line