Belief, Policy Measures, Expectations and Final Result with Causes
Actuator: Finance Ministry, Reserve Bank of India, SEBI
Policy No.1: Exchange Rate
BELIEF & PARADOX (
In small prints)
1. Weaker Rupee helps exports and earns FOREX2. Domestic Industries are protected against excessive and expensive imports3. Jobs in domestic industries are protected and also promoted4. Foreign Debt reduces due to FOREX earnings out of exports
POLICY MEASURES: SwitchON
Weaken Rupee by all means
Reduce NRE deposit rates
– pay them much less than domestic deposit
rates (6% less)Even if NRI came to the country’s rescue in 1992 FOREX crisis, when India had to pledge Gold to Bank of England. NRI were treated like disposable towel
Do not let FII to buy Rupee from the market
. Let them come to RBI directly to rewardthem with much higher rupee rate as enticement not to go to the market.
Even if it costs national exchequer hundreds of crores of rupees
Sterilize any rise
in the market by buying back dollar against rupee
Even at the cost of higher money supply leading to inflation4.
Allow Indian Businessmen to invest overseas
so that they buy dollars and sellrupee to cause it weaker and weaker.
While Foreign Investors were keen to invest in India, India was telling its businessmen NOT to invest in India butinvest overseas, as though India had become one of the richest countries in the world. Even China after receiving almost $500 billion never thought of stopping the inward money flow and permitted Chinese to investoverseas5.
Allow Indian citizens to remit overseas
US$ 100,000 without RBI approval, so thatpressure on rupee is reduced by letting them sell rupee and buy dollars.
While permission was not given to individual foreign investor to invest into Indian stock market as logical stepfurther to widen the Indian markets or for direct investment, domestic Indians were asked to invest overseas,even when India was facing dearth of capital for building power plants, ports, Airports, national artery roads,sewerage, water filtration plants to reach every nook and corner of the country
6. SEBI, RBI: They introduced
to scare away the foreign investors from India sothat upward pressure on rupee is diminished.7. SEBI: introduced
arbitrary circuit breakers
for market and individual stocks in the name of maintaining order which again scared the foreign investors who were faced with illiquidity in theinvested counters. Some stocks had 5, 10, 15 or 20% up or down circuits that were fixedarbitrarily.
SEBI forgot main principle of free market that every investor has right to invest or disinvest in any stock at anytime without hindrance. Even in market crash such as now, and in January 2008, the foreign and domesticinvestors were not able to sell the stocks at market because there was no market.
FM, RBI, SEBI: prohibited
on selected counters to arrest the market fall
If there were no restrictions on Long Buying of any stock, that lead to huge rise in Sensex from 2800 to 21000(over 700%) in 5 years, why should there be ban on Short Selling of stocks or index?. In any healthy systemthere is inlet or outlet to maintain the equilibrium. If there is only inlet, everything including wastage isaccumulated, that poison the system ultimately.
Dogmas, False Policies and Misplaced Priorities
I have said often that if certain policies do not work with reference to standard for long time, there issomething wrong with the standard itself.
Such erroneous standard has to be abandoned
. However,most of the policy makers and economists have been groomed in high end business schools that relyon outdated textbooks. These guys are not wise men but guys, who never worked on the front line,never gained first hand experience, always sat on the back bench, followed the books in full literarysense, and almost forgot that they too have common sense distributed by the God equally regardless of class, religion or nationality. This intelligentsia jettisoned the common sense and practiced high endintelligence that had no applicability in real world.
Why Rupee should be allowed to appreciate?
The weaker rupee policy did not work for 60 years, and yet the Prime Ministers, Finance Ministers,Reserve Bank of India’ Governors, followed the same policy 247365 or 24 hours a day, 7 days a week