Trade and Payments

Can the RBI’s open market operations help the rupee? C. P. Chandrasekhar and Jayati Ghosh

The recent depreciation of the rupee has created consternation among those who need to buy foreign exchange. It has also caused panic in the stock markets, whose decline partly reflects the exit of foreign investors, which contributes to the rupee’s fall. It spells further trouble for companies that borrowed heavily in foreign currency, encouraged by lower interest rates abroad. It adds to domestic inflationary pressures that were already rising with higher global oil prices, which have been mostly passed on to domestic consumers. While the recent slide in the rupee’s value is particularly steep, it is part of a longer…

Trade War Due To Deeper Malaise Anis Chowdhury and Jomo Kwame Sundaram

The world economy remains tepid and unstable a decade after the 2008 financial crisis, while growing trade conflicts are symptoms of deeper economic malaise, according to a new United Nations publication. While the global economy has picked up since early 2017, growth remains hesitant, with many countries operating below potential. The year ahead is unlikely to see much improvement as the world economy is under stress again, with rising tariffs and volatile financial flows. Underlying such threats to global economic stability is the failure to address fundamental weaknesses in global economic governance which have been fostering global economic inequities and…

The Fall Of The Rupee Prabhat Patnaik

The rupee’s current tendency to fall is hardly surprising. India’s growth experience, unlike China’s, was built on the quicksand of a more or less persistent trade and current account deficit on the balance of payments. But there was always enough financial inflow not just to cover the current account deficit but even to add to our foreign exchange reserves. Initially this inflow was stimulated by the sheer fact of the economy’s being opened up to such flows: wealth-holders abroad got a chance to diversify their portfolios by buying into hitherto- unavailable Indian assets. Later, the higher interest rates in India…

The Indian Economy in A Tailspin Prabhat Patnaik

The Indian economy is in a tailspin. This cannot be attributed only to innocence in economic matters of the command-centre of the NDA government. While that is indubitably a contributing factor, the current travails of the economy point to something deeper, namely the dead-end to which neo-liberalism has brought the economy. Without moving away from the neo-liberal trajectory, the economy cannot come out of its current difficulties. India’s success in raising the GDP growth rate, the main selling point for the neo-liberal regime, was, unlike China’s, built upon the quicksand of a persistent trade and current account deficit on the…

RCEP Deal can be disastrous for India Biswajit Dhar

Trade ministers of 16 countries negotiating the Regional Comprehensive Economic Partnership (RCEP) met for their crucial sixth meeting in Singapore in end-August, in an effort to create by far the largest economic integration agreement. The joint media statement issued at the end of the ministerial meeting provides some key pointers to where the negotiations are headed. The statement mentions that the ministers exchanged views on the next steps toward the conclusion of negotiations and that they adopted a package of deliverables. Although the contents of the package are under wraps, the statement says that the ministers instructed their negotiators to…

The Real Problem with Free Trade Jayati Ghosh

Even if free trade is ultimately broadly beneficial, the fact remains that as trade has become freer, inequality has worsened. One major reason for this is that current global trade rules have enabled a few large firms to capture an ever-larger share of value-added, at a massive cost to economies, workers, and the environment. For full article click here (This article was originally published in the Project Syndicate on September 10, 2018)

India’s Electronics Manufacturing Sector: Getting the Diagnosis Right Smitha Francis

The Indian government has announced several policy measures aimed at promoting domestic electronics manufacturing as part of its “Make in India” initiative (2014). A casualty of incoherent policy regimes for nearly three decades, the electronics industry appears to be receiving some focused attention. The efforts began after the National Policy on Electronics (NPE), drafted by the Department of Electronics and Information Technology (Deity) in 2012, highlighted the abysmally low level of value addition in domestically produced electronic products, which ranged just between 5% and 10% in most cases at the time (NPE 2012). Instead, electronics manufacturers appear to prefer importing…

The State of The Economy Prabhat Patnaik

Newspaper headlines over the last few days have highlighted three facts which point to the current abysmal state of the Indian economy. The first relates to inflation, where the June 2018 wholesale price index was 5.77 percent above that of June last year; this is the highest inflation rate witnessed since December 2013. The second is a burgeoning trade deficit: the trade deficit in June, at $ 16.6 billion, was again the highest for any month in the last five years. The third relates to the industrial stagnation that has set in: the growth in factory output in May (the…

A Legacy of Vulnerability C. P. Chandrasekhar and Jayati Ghosh

Recent months have been marked by an exit of foreign investors from India’s financial markets, triggered by the end of quantitative easing in the US and Europe and hikes in policy interest rates in the former. This has resulted over the last few weeks in a sharp depreciation of the rupee relative to the dollar, which not only raises the rupee costs of imports, but also the rupee equivalent of payments made to service foreign debt. That has meant that India is now paying the price for a legacy of debt built up during the years when the Federal Reserve…