I am kicking myself for being dense beyond description. For, whichever economic or financial Web site I go to, I simply see no proximate or even distant connection between the predicament of Greece and the financial turmoil in the Euro Zone on the one hand and, on the other, the plummeting of the rupee by 22 per cent in the course of the year.

All the more unintelligible does the alibi trotted out by the Finance Minister, Mr Pranab Mukherjee, making out Greece as the scapegoat, seem when set against the fact that the currencies of economies which were supposed to be weaker than that of India have recorded no such precipitous fall.

Bloomberg says the ringgit slumped 1.1 per cent in Kuala Lumpur, the Korean won dropped only one per cent, the Philippine peso weakened 0.9 per cent and Thailand's baht fell 0.5 per cent. The Chinese yuan too has got off lightly, sliding by a mere 0.5 per cent since the start of 2012. Why should the rupee alone should be tumbling down the abyss?

INTERNAL FACTORS

The phenomenon has yet another mystifying aspect. The Government has repeatedly taken the stand from the onset of the financial crisis in Europe and the US in 2008 that India is immune, and would remain immune, with healthy macro-economic fundamentals because of the prudent regulatory policies adopted by itself and the Reserve Bank of India. The last to sound this optimistic note was the Economic Survey of 2011-12.

The Government has invariably taken comfort in the negligible exposure of banks in India to the Euro Zone, and given repeated assurances it had no direct or serious impact on the country's banking system.

In fact, even while throwing the blame on Greece for the fall of the rupee, the Finance Minister has once again iterated that “India's growth story is intact” and there was no need to press the panic button.

Instead of summarily drawing what to me is a red herring to nobody's edification, the Finance Minister should have provided evidence in a detailed statement of his being in command of the internal factors — these might have more to do with what an article (“Battered Rupee highlights India woes”) in the May 17 issue of The Financial Times pointed to as domestic “economic malaise”.

Mr Mukherjee could not have been unaware of the gloomy result of a study of 27 countries with reference to inflation, growth in bank lending minus that in nominal GDP, real interest rates, currency movements and current account balances published by The Economist on January 26.

It showed that China, Indonesia and Saudi Arabia have the greatest stamina to face economic challenges or what the magazine calls “wiggle-room index”, that is, monetary and fiscal firepower, while India occupies the bottom of the scale (27th) along with Egypt.

COMPLEX SYNDROME

Whether the Government believes it or not, following the ongoing tussle with Vodafone, the flip-flop over the General Anti-Avoidance Rules, the tardiness of reforms, and the vagaries of policy-making have contributed to a worldwide disillusionment with India.

The flow of funds from foreign institutional investors has become an uneven and uncertain trickle due to fears over amendments to tax laws.

The RBI itself in a paper (April 11) on foreign direct investment flows to India has attributed them to certain institutional factors that dampened the investors' sentiments. In these circumstances, the Finance Minister may have to put under the scanner the strength of the macro-economic fundamentals themselves.

The fall of the rupee is a complex syndrome which had predominantly to do with India's economic (mis)management, rather than being brought on by Greece or Euro Zone.

Of course, in an inter-connected world, they say, even the fluttering of the wings of a butterfly in Brazil may cause an avalanche in the Himalayas, but if such rhetoric overlooks the real cause, it may spell economic disaster.

The only thing in the Finance Minister's statement which makes some sense is his declared intention to impose austerity measures.

In a context in which ministers and bureaucrats are unabashedly squandering away resources to placate vote banks and to feather their own nests, there is certainly need for the country to be in a perpetual state of austerity.

comment COMMENT NOW