The rupee is falling and simultaneously the gold price is rising in India. It seems that the Indian economy is faced with a jeopardy that it has not encountered in the last 15 years. At present the rupee has gone as low as 68 a dollar. The fall of rupee has put fear in the hearts of foreign investors. Fiscal deficit is definitely one of the reasons which have affected the downfall and the situation might get worse. Last weekend when investors were relieved from the tension of US attacking Syria the rupee also got respite but then it again started drooping downwards.
The fear regarding the end of quantitative easing that US provides has made the currency of many countries like Indonesia, Brazil, Turkey, Russia, and South Africa fall. The common factor about these countries is that they all have a growing market. At the same time gold prices have gone up to 34,000 rupees per 10 grams. The worries regarding war between US and Syria has been one of the prime factors for such hike in gold price. The military actions that US might take against Syria made the Malaysian ringgit, Indonesian rupiah and the Philippine peso hit a rock bottom just like the rupee.
The recently passed Food Security Bill is also responsible for the receding value of rupee. To make sure that the Food Security Bill mandates are observed the government would have to spend around 1.3 lakh crore every year. After spending such a huge sum the government won’t be able to control the fiscal deficit and such doubts have become deadly for the value of rupee. Even though P Chidambaram, the Indian finance minister, has tried to assure that the government will not cross the boundaries still the investors are not so sure anymore about the future of Indian market.
The importers are demanding their share of month end dollar but there is not enough supply of dollars to meet this need. The announcement of abatement of bond buying program of US Central Bank has also put the rupee in danger. Investors are pulling out their money to invest in US market and that puts the Indian economy at peril. The current account deficit is another serious reason behind the fast decreasing value of rupee. The growth of economy has also slowed down as a result.
