NY Times: “As the Indian rupee continues to fall in global markets, many respected analysts contend that the weakening currency signals the failure of the economic policies of the Indian government.
In an op-ed column last weekend in The Business Standard, a leading business daily in India, Shankar Acharya said: “The real cause of the rupee’s weakness is the relentless deterioration in our economic policies in recent years. A falling rupee is simply a symptom of the underlying disease: unsound economic policies.” Mr. Acharya was part of the team that helped design the original economic reforms of 1991 and is a former chief economic adviser to the Indian government so his words should be taken seriously.
In a similar vein, in a recent op-ed column in The Wall Street Journal, Eswar Prasad wrote: “The falling Indian rupee, which Monday closed at an all-time low relative to the dollar, is a perfect metaphor for the free fall India’s economy seems to be in.” He went on to lay the blame squarely on the government’s failure to pursue necessary economic reforms, contending that the “real message” of the depreciating currency is that “India’s policy making has lost its way.” Mr. Prasad is a professor at Cornell and a former senior official of the International Monetary Fund, and his voice too must be given heed.
With all due respect to these eminent economists and others in the media who have been opining in a similar fashion, the charge that the rupee’s misfortune principally reflects the government’s policy failures cannot be decisively established on the basis of the evidence at hand. If the Indian government was in the dock, and Anglo-American rules of evidence were applied, the verdict would have to be “not guilty,” or, at best, “not proved,” if Scottish rules were used instead.
The rupee’s downward trajectory, if it were drawn on paper, could best be seen as a Rorschach test of analysts’ hopes and expectations. There is no doubt that the current Indian government has failed to deliver on much-needed “second generation” reforms, as many observers, including myself here in India Ink, have noted. This fact – driven by the reality that good economics is often bad politics in a democracy, as I argued late last year in an op-ed column in the Business Standard – is surely regrettable.”
via Who Cares if the Rupee Keeps Falling? – NYTimes.com.
Author: Vivek Dehejia is an economics professor at Carleton University in Ottawa, Canada, and a writer and commentator on India. You can follow him on Twitter @vdehejia.
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