Rupee rate and subsidies

There are people who speak against electricity, water, fertilizer, diesel, kerosene, petrol and LPG subsidies. Some even say diesel and LPG subsidies benefit middle class and not poor people. They do not speak against corporate debt restructuring (CDR) and exchange rate manipulation to keep rupee value low. Lakhs of crores of rupees are lost due to CDR. Rupee value is kept low to benefit exporters. For the profit of few exporters 125 crore Indians are made to suffer. If rupee appreciates there is no need for diesel, kerosene, petrol and LPG subsidies.

Foreign exchange increase due to buying dollars has kept value of rupee low against dollar. A dollar is more than more than 60 rupees. Below given are figures for three weeks.

Forex increase is in million dollars. Forex reserve is in billion dollars.

Week ended Forex increase
(in million US $)
Forex reserve
(in billion US $)
6-Jun-14 203.20 312.500
13-Jun-14 950.90 313.536
20-Jun-14 1385.00 314.922
Total 2539.10

If RBI had not bought dollars rupee would have been less than 60 per dollar. If rupee is allowed to appreciate it will be 30 rupees per dollar in a few months. There will be no need for any subsidy and prices of diesel, kerosene, petrol and LPG can come down. Consequently prices of many commodities dependent on them can come down.

India should have agreements with countries for mutual acceptance of currencies. American dollar should be accepted from USA only. From euro zone countries it should be euro. From Russia it should be rouble. From Kuwait it should be Dinar. From UAE it should be Dirham. From South Africa it should be rand. From Saudi Arabia it should be riyal. India should pay in rupees for imports. No trade with any country that does not want currency agreement.

Corporatism thrives. Democracy is a myth except perhaps in Switzerland where there is direct democracy to a great extent. In capitalism those who make loss go out of business. In corporatism when corporates make profit they keep it, when they make loss it goes to taxpayers. Ordinary people have no choice in decisions. That is true in USA, India and many other countries. It is oligarchy is most countries.

Rupee value has been brought down by vested interests. For some years there was quantitative easing of restrictions which meant printing of notes. For five years Federal Reserve Bank of USA engaged in bond buying of 85 billion dollars per month. That means 1.02 trillion dollars per year. Rupee was 40 per dollar. It should have been 20 rupees per dollar. Instead it became more than 60. Bond buying continues in 2014 though less than 85 billion dollars per month. It has been 75, 65, and 55. USA had debased its currency. India has debased its currency even more.

Narendra Modi had promised good days. We have not seen good days. Prices have gone up. Railway fares went up. It may be good days for corporates, exporters and traders but not for ordinary people. For an ordinary person it does not matter how high is the Sensex. Prices of onion, garlic, food grains etc. matter. Modi has to see that inflation is zero, prices are under control and rupee appreciates against dollar and other currencies. Otherwise disillusionment will set in fast and he will be in trouble.

Updated: July 5, 2014 — 1:39 am

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  1. Sir this is awesome post. I didn’t know about it before. Thanks for the great knowledge shared by you. :)

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