India Inc jitters on rupee, economy

Mahindra, Bajaj rap govt for inaction

The rupee’s sustained fall against the dollar, lack of reforms and a crippling liquidity crunch is making India Inc jittery about the economy.

On Wednesday, Anand Mahindra, chairman of the Mahindra & Mahindra group, tweeted about the rupee’s continuous fall in spite of several steps taken by the Reserve Bank of India and the government.  This came soon after the currency fell to 61.17 a dollar, just a bit below its all-time low of 61.21 on July 8. “Skydiving without a parachute again. A signal that unsterilised band-aid is not the solution,” he said. The rupee finally closed at 60.40 a dollar.

“It’s 1991 (the great economic crisis) redux, and the enduring remedy is more reform, across ministries, and incentivisation of manufacturing and exports. Choking (of) liquidity is a death wish,” Mahindra tweeted. A falling rupee, says India Inc, will stoke inflation, especially in the backdrop of India importing all its oil products from abroad. Rahul Bajaj, chairman of Bajaj Auto, says encouraging of foreign direct investment and foreign institutional investors are temporary measures, to be done for their own sake and not only to bridge the capital account deficit. “The volatility of currency hurts everyone, including trade and industry. A weak rupee is the symptom and not the cause of our problems. Our current account deficit needs to be bridged. To increase export of manufactured goods, government needs to take some policy measures which are politically difficult and will take time to give results,” he said.

Some chief executives (CEOs) say RBI has already exhausted all the ammunition to fight the rupee’s fall. “I suspect RBI does not have very many options open… till the balance of trade issues are finally resolved, this rupee depreciation issue will not. The focus should be correcting of trade balances and ensuring the capital account deficit is under control. That's the only way to stem the Indian currency depreciation, apart from capital inflows,” said the CEO of a large company, asking not to be named.

The head of a Mumbai-based infrastructure company said stalled projects worth $120 billion were taking a toll on the economy. “Forget new projects — even existing ones like Ratnagiri Power are shutting due to lack of fuel. This is not good news for any new investor planning to come to India,” he said. There has not been a single new investment since the government opened the multi-brand retail sector to foreign companies.

Seshagiri Rao, MD of JSW Steel is not optimistic like other CEOs. “The type of measures the government has taken the rupee should not depreciate further but at the same time it is anybody's guess,” says he.

The slowing down of the economy can be gauged by the fact that of the total 566 projects analysed by the Indian government costing Rs150 crore or above as on April 2013, almost half were behind schedule – the highest in the last 15 years. Coal, steel, hydro power and roads sectors have seen significant delays and are the worst affected.

With Ujjval Jauhari