The rupee continues to be volatile. It is reported to be at an all time low, against the dollar. The reasons mainly is stated to be the strengthening of the dollar vis-a-vis the Euro, in the context of economic uncertainties within the EU consequent to the polls in Greece and France. (How that should affect the rupee’s parity with dollar needs some study,- by me.)
More importantly, significant capital outflows seem to be behind the sustained weakening trend of the rupee.
The Reserve Bank of India has tried to arrest the weakening , by permitting a hike in the interest rates on Foreign Currency bNon-Resident Deposits a few days ago. But this measure is yet to yield tangible strengthening of the sentiment in favor of the rupee. Inviting of deposits at a high rate of interest, to tide over deficits arising out of unbridled consumption seems to me counter intuitive.
A kilo of mangoes costs anywhere from Rs. 50 to 100. A kilo of even locally-grown vegetables costs anywhere from Rs.30 to Rs.60 or more. There is no let up in the increasing trend of power and fuel bills.
Inflation, of food, fuel and energy prices causes concern. The. Government is faced with the difficult tradeoff between growing inflation and management of the deficit
The growing inflation does not seem to portend a growth in growth, if you know what I mean.. The investment climate is sluggish while we seem to be intent on consumption with no regard for tomorrow, even while subsidies go on to increase the deficits
High rate of inflation, high fiscal deficit, low growth and increasing current account deficit and balance of payment concerns are portents to a bleaker economic outlook.
The finance minister feels that though there are warning signals, there is no cause for panic.
To my novice mind, there appears need to tighten our belts, at least mine.