History repeats itself. Only actors change. One is convinced about the truth of that statement if one cares to check the media headlines on the Economy in the recent weeks with those of 2013 in the same period. The actors have changed. The opposition BJP that was baying at UPA's 'incompetence' (especially that of PM Dr. Manmohan Singh) in dealing with the then stock market mayhem, the free fall of the Indian Rupee and the stalled economic reforms in August 2013 is now at the receiving end. There are striking similarities in the government's explanations for the market and Rupee volatility and global economic uncertainties and the opponents' criticism of the government response.
Let us first look at the top media headlines in August-September 2015:
Market Mayhem: A screaming headline was this: Sensex plunges 1625 Points, as China Equities Fall over 8%, NIFTY Closes at 7809. This news story explained that panic has spread to Indian equities on the back of global rout driven by Chinese actions (devaluation of the Yuan) The Indian Express story was similar: A global sell-off sent the Indian market crashing ...7 lakh crore in market capitalisation was eroded within hours.
Rupee Crashes: On August 12, the news agency Reuters announced: Rupee falls to lowest since 2013 crisis on Yuan devaluation.
The Opposition Congress spokesperson Surjewala in a statement lampooned Narendra Modi by saying: 'Rupee has passed PM and Arun Jaitley's age, will it now pass Advani's age?'. "PM Modi had promised that Rupee will trade at 40 per dollar but now trades at 66.43. Today the stock market has crashed, core sector of manufacturing is down: and, to blame it on global recession or Chinese economy is meaningless". Another party worthy said: the Rupee is on ventilator. We are in emergency mode, borrowing words from Narendra Modi's election campaign.
Official explanation in 2015: The finance minister Arun Jaitley and RBI governor looked to provide some comfort to investors, maintaining that the Indian economy was relatively better off and the government and RBI were keeping a close watch on the global situation.
Describing the market crash as 'transient and temporary', Jaitley blamed the fall on external factors. He added: "There is not a single factor in India which has contributed or added to it".
The external factors responsible for the setback to economy were: China cutting interest rates and yuan devaluation. Followed by global concerns over North and South Korea confrontation; the fighting in Syria; the biggest trigger was the possibility of US Federal Reserve raising interest rates (from the present zero rate), that could cause outflow of funds from Indian market.
Speaking about what India needs to do in the present situation, Jaitley said: "I have no doubt the market will settle down. The government's response is very clear. We have to strengthen our own economy".
RBI governor has assured that RBI will not hesitate in using the forex reserve ($354 billion) to contain the volatility of the Rupee.
Now Lets us turn our attention to headlines announcing doom for Indian economy in 2013 Monsoon season.
New All-time low of 68.75/dollar, Sensex Sinks over 500 points. Another newspaper on August 16th cried: "Market mayhem: Sensex crashes 769 points; biggest fall in 4 years. The news story explained that the Rupee plunge was because of persistent demand for dollars by banks and importers due to fall in equity markets amid the rise in crude oil prices ($106/per barrel). Another newspaper cited some other reasons.
A newspaper headline on August 29 screamed: Rupee Tumbles to for the market and Rupee volatility: Among them was the fear over possible US attack against Syria, on the back of an ill-timed statement by an official of US Federal reserve that it could withdraw the stimulus earlier than expected
BJP Attack in 2013: Expressing concern over Rupee reaching an all-time low, BJP said: "the currency could plunge further as a share of the US financial stimulus package benefiting India during the sub-prime crisis in 2008-09 may be withdrawn.BJP alleged 'gross mismanagement' of the economy by UPA and dismissed the government's claim that fundamentals of the economy are still strong. Ravishankar Prasad quipped that when UPA government was formed, the Rupee-Dollar ratio was equal to the age of Rahul Gandhi. Today it is nearing the age of Sonia Gandhi and we apprehend that it would touch the age of Dr.Manmohan Singh'.
Official explanation in 2013: 'The government is continuously monitoring the emerging external sector developments leading to higher CAD (import-export gap) and rupee depreciation,(The government) has a slew of initiatives to boost exports and reduce imports to facilitate financing of CAD(bridge the import-export gap), and stem the volatility in exchange rate of the rupee', P.Chidambaram said that the market should not be so sensitive to data flowing from US. 'When calm is restored in the market, people will begin to understand that India market indicators must basically reflect Indian market conditions'. 'The economy has showed early signs of recovery with pick up in exports, We have taken numerous reform measures over the past one year.. and should see pick up in economic activity.
RBI steps in 2013: In Augsut, RBI took oil companies, the biggest purchasers of Dollars out of the market through a swap deal. A month later, RBI again, struck swap deal with the banks for foreign currency deposits that have so far fetched RBI nearly $17.5 billion. These two strong measures have reduced the demand for dollars and ensured inflow of funds, said an RBI official.
PM's Statement: Unlike in 2015, the then PM, Dr. Manmohan Singh, himself made a statement in the Rajya Sabha, for addressing the concerns. The Rajya Sabha witnessed the ugly spectacle of BJP members rushing to the well of the House and hurling abuses at the PM when he was speaking. The sum and substance of Dr. Singh's statement was this: Ultimately, the value of the Rupee is determined by the fundamentals of the (our) economy. While we have taken a number of actions to strengthen those fundamentals, we intend to do more. The PM also mentioned the well-known external factors responsible for the market and Rupee nervousness: Global factors such as the tension over Syria and the prospect of US tapering its policy of quantitative easing have caused general weaknesses in emerging markets. The Rupee is especially hit by large current account deficit (due to high import of oil, coal and gold imports). He assured that the government was taking all measures to reduce the CA deficit.
GST Discourse in 2015: Arun Jaitley called for cooperation from other parties to get the tax passed by April deadline. "it is time for political aprtie4s to display some element of statesmanship, particularly when Indian is trying to emerge as an important economic force'.
GST in 2013: Presenting the Budget, Chidambaram hoped that the consensus reached between the center and the states on contentious issues will be carried forward and 'bring about a transformational change in our tax structure'.
In Augsut, Dr. Manmohan Singh in his Rajya Sabha statement appealed to the opposition thus: "It is here that I urge honourable members across the political spectrum to reflect on the need of the hour..... Many laws (including GST) are held up for lack of consensus.... I urge political parties to join in the government's efforts to put the economy back on the path of stable and sustainable growth.
Global Uncertainties have come to stay: The above recall of the political dialogue on so critical a subject as the Indian economy shows that we are witnessing the dialogue among the deaf. As a globalised economy, India is not insulated from the effects of global economic, financial and political developments. As world GDP and trade are growing very slowly, India's hopes of repeating its feat of 9-10 percent growth rate achieved in the decade of 2001-10 in the short-term are unrealistic. The RBI Governor Raghuram Rajan has rightly cautioned that attempt to force growth through quick fixes could hurt the economy in the long- term.
The lesson that comes out of recent market and Rupee behaviour is that global uncertainties as well as beneficial trends vitally influence a large economy like India. The governments tend to assign blame to 'external factors' when faced with a crisis but rarely tells the public the truth about economic prosperity fuelled by fortuitous factors.
The UPA patted itself on the back for the economy growing at 8-10 percent growth in the first decade, but rarely it acknowledged the contribution of global factors like the flow of investment from US as result of the Federal Reserve's easy money policy and the robust Chinese economy importing huge quantities of commodities (that had boosted India iron ore and other exports). But this government's efforts to push the economy suffered due to high prices of crude oil, heavy gold imports and lack of political consensus on economic reforms.
The present government, like UPA, is not acknowledging the fortuitous factors responsible for India's current growth rate of 7-7.5 percent, the best among emerging or other economies. Among such factors are: the Federal Reserve has continued its Zero interest policy. The day Fed opts out of it, Indian will feel the pinch.
The biggest bonanza for BJP government has accrued from the crash in crude oil prices (from $110 in 2013) to about $40 per barrel. Although exports are not doing well, the import-export gap (CAD) is low. NDA's efforts to accelerate growth is hampered by the slowdown in global economy and political confrontation.
What the above analysis shows is that India is catching more of the headwinds blowing from global uncertainties; it is unable to take full advantage of windows of opportunities such uncertainties throw up mainly due to the prevailing atmosphere of political confrontation.
(S Narendra is an Indian Information Service officer who retired as the Principal Information Officer and media advisor to prime minister Atal Behari Vajpayee. He also served under prime minister Narasimha Rao and held various positions at the I&B ministry.)
[Disclaimer: This article reflects the writer's personal opinion and does not necessarily represent the views of IBTimes India.]
