How can the citizens of India contribute and prevent value of rupee from falling?

by Manshu on September 13, 2013

in Uncategorized

Gunjan Talwani sent the following email day before yesterday:

Gunjan Talwani:
How can the citizens of India contribute and prevent value of rupee from falling?
Please suggest few steps.

I think this is a very noble sentiment and you don’t usually see these type of comments where people want to know what they can do to improve the situation, so I was impressed by it, and it got me thinking of what should an Indian do to prevent the value of Rupee from falling?

Buy less gold?

Gold imports were the first thing that came to my mind as the government has said several times that gold imports has burdened the CAD (Current Account Deficit) and they have raised duty on gold several times to slow down gold demand.

One way to slow down gold demand is if the people themselves started buying less gold, so that’s one way to help arrest the Rupee slide, but would this be patriotic?

I don’t think so because gold buying has increased a lot in recent years just for investment purposes and gold is being considered for this because there aren’t really that many alternatives available to Indian investors.

Most people aren’t comfortable with equities (justifiably so), real estate is ridiculously priced, and not everyone can afford that, fixed income options have all negative real rate of returns, and in this environment gold at least promises the hope of real return.

Long term readers know I don’t have any gold in my own portfolio and have never bought any throughout this rally, and my opinion on gold has certainly not changed. I’m merely saying  that most people want to choose this option, and it is not greedy or selfish for them to want to protect their money from the high inflation that has been caused by the government policies in the first place.

So, no, I don’t think it is patriotic to avoid gold.

Do not buy diesel cars?

After gold, oil is the second biggest thing on people’s mind when you talk about deficits because of its size, and also because of the various subsidies given in petrol and diesel.

If you are driving a diesel car then you’re benefiting from a government subsidy that punches a hole in the country’s finances, while you enjoy the high view from your SUV. There was a proposal to impose additional excise duty on diesel cars but I don’t think that has been implemented yet.

So, that might be a patriotic thing to do – drive a petrol car, and pay more. Would I do it myself? No, because if there is a policy anomaly then I want to take advantage of it, and the money saved from a diesel car can be used to buy onions.

Do not buy imported goods?

This is the third thing that came to mind – what if people just bought made in India with the hopes of keeping money within the country and lowering the import number so as to control CAD. I don’t think that is very practical if you look at all the things you use in your every day life, and even then it doesn’t solve the underlying problem of slow export growth. It also ignores the fact that we live in a globalized world where the whole world benefits from trade, and that’s not the problem.

Do you see the theme?

The point I’m trying to make here is that the common Indian citizen can take some steps to help the government bring down the CAD, and help the Rupee, but even if they do so they don’t solve the underlying problems like slow exports, policy inconsistencies or economic sluggishness.

I’m of the opinion that the people are the victim of these policies and this is not a situation similar to the 2008 US Housing Crisis where people who bought houses with the intention of selling them at a higher price one year down the line also had some share in the blame for the crisis. The Indian situation is different.

If you don’t attack the roots of the problems which can only be done by government policies then you can’t really find a long term solution to this problem.

Conclusion

I think the root cause of the Rupee decline and the economic slowdown in India is government policies and inaction, and I don’t feel that there is anything the common citizen can do to help this cause since finally policy making and implementation is beyond the public and that’s where the solution lies. This is disheartening and I hope someone can point out practical measures that I couldn’t think of but my assessment is that the government (this or the next) has to take action.

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