Islam leaves no scope for the hegemony, like that on US dollar which gets undue benefits of international financial transactions. Every benefit should be due and properly earned, avers DR. WAQUAR ANWAR
The sharp fall in the exchange rate of rupee vis-à-vis US dollar shows that either Indian economy is in turmoil or, if it is not so, it is so perceived internationally. Alternatively, both may be true. This brings to light the hollowness of our claim that we are destined to become one of the largest and sturdiest economies in near future. The date of any such ascension may have slipped farther in the tunnel of future!
The depreciation of rupee is, in fact, a symptom of bigger malaise in economy. The symptom itself needs to be addressed immediately but that would be a short term solution and the ills of economy will continue to recur in one form or another. A long term solution is: diagnose correctly the disease and opt for its complete cure, whatever time consuming or painful be that therapy.
THE SYMPTOM
The fundamental cause of any depreciation of money is the pressure of balance of payment on account of trade deficit. Conveniently, we may call it a Current Account Deficit (CAD) where growth of import outshines the growth of import. The other reason is the perception of currency exchange market where the international big market-players play games. Perception about any economy may be made or unmade for speculative purposes. The simple solution is to curb imports and increase exports. And for increasing export the creation of quality products and services and their facilitations are required.
The increase in Import over the years at a good pace can be related to the economic reforms brought in the year 1991 when today’s Prime Minister was Finance Minister. The policy statement then stated, “Providing better choice to consumers through better productivity and exposing to competition….” That policy was import-centric and it paid dividends in the form of ‘better choice’ and ‘exposing to competition.’ The idea of ‘better productivity’ got lost in the milieu. Neither productivity nor export increased commensurate with imports.
The expert comment of Arun Maira, Member Planning Commission, is eye-opener. He said, “Twenty years after the momentous economic reforms of the 1990s – the removal of controls on industry and the reduction of import tariffs – Indian consumers are enjoying a great variety of products, many imported…. And a lot of what passes as manufacturing in the country is assembly of imported components. Freedom to import with low or no duties has created a class of traders who masquerade as industrialists….”
No comment is required on this as it is from the horse’s mouth!
The dichotomy was felt later. A correction was done by announcing Manufacturing Policy, 2010, which is, for all practical purposes, a non-starter.
IMPORT BILLING
The lion’s share of import billing comprises crude oil, followed by items like gold, iron ore and coal. We are facing problem in paying our oil bills in US dollar. This can be eased out by accepting the Iranian offer of accepting payment in Rupee. However, any business transaction with Iran needs political will. And a degree of courage to face American ire and to keep it at bay in matters concerning our interest is called for. Import of gold can be totally avoided. This import is a non-essential burden on our economy. Import of coal and iron ore which we have in abundance as reserve is a matter of national shame.
Our failure to arrange refineries or processing arrangements for improving these raw materials to the stage where these can be utilised as inputs is the major cause of these imports. It is reported that a number of related projects are pending with different ministries and different government departments. Further, courts have curbed their export, obviously owing to alleged cases of corruptions.
WHAT “THEY” SAY?
Even in this stage of crisis we notice that there are many experts who are not worried and “they” say that everything is as usual. So there is no cause of concern. The other day our PM, an economist of international repute, said in the Parliament that the whole economic structure is in place and so one need not panic. Other persons are repeating the same assertion. We even find economists saying that what is happening is the required correction as Rupee had lost purchasing power. It is suggested that Rs. 65 a US dollar is OK. If it shoots above, it would be alarming. They can go on talking this even if it goes around Rs100 a US dollar.
Another expert gentleman said that the depreciation in our currency is commensurate with that in South Africa, Turkey, Brazil and Indonesia. As if it were justification! In this regard one suggestion mooted is to encourage Foreign Institutional Investment (FII) in our stock market and further increase the cap on Foreign Direct Investment (FGI) in our industries. The FII route of funding is a two-edged sword. It comes fast and may leave fast, too. The FDI route of funding is a delicate matter where desirability or otherwise in specific industries should be decided after serious deliberations.
SUGGESTIONS
Many worthwhile suggestions are given by economists and the government, it is expected, will be able to arrest the fall of Rupee through these measures. The suggestions include import of oil from Iran on currency swap basis and search for scope of other interested nations who are ready to accept payments in Rupee, avoiding US dollar. At least this can be probed seriously between SAARC nations and other similar conglomerates. Non-essential imports like gold should be restricted.
The basic approach is to increase productivity and export of indigenous goods and services. This may require providing subsidies and other benefits and facilities for manufacturing and exporting units. We should not shy away from this and should not let any other, be it IMF or US or any other quarter, to dictate terms. Our national interest should prevail. We can learn from China which has facilitated its production and export and has now become a nation which has positive balance of payment against almost all other countries. Everyone else is indebted to it. It has not allowed foreign debts and has totally depended on its own resources or on the inflow of funds from its nationals living abroad.
THE US CASE
It is reported that one of the reasons of depreciation of Rupee is the strengthening of US dollar. It is said that the US Federal intends to gradually take back facilities it provided to overcome its financial crisis and in this regard it is controlling issuing of treasury bonds. In other words, these actions mean the dollar has become stronger – and become dearer thereby. But let us consider what the actual position is? Has US economy actually become stronger? Any serious study will show it is not the case. The US dollar is getting unjustified benefits of all international payment in the currency. Be its oil sale from one non-US country to other non-US country or any other financial transaction. For example, when Saudi Arabia provides aid for Egypt, it does so in US dollar, not in Riyal. The beneficiary is the US dollar.
STRUCTURAL CORRECTIONS REQUIRED
The real solution lies in structural changes in the economy. The existing capital-centric economy of the capitalist world, which we are following, is full of vices and all its ills are their natural consequences. There is need to opt for fundamental economics which is production-centric. The capital-centric capitalistic economy has made money a commodity itself whereas its role should be limited to that of medium of exchange. The instrument of interest has corrupted everything. Added to this is the speculative trading in stocks and futures trading in commodities.
The world should consider the alternative system of economy which Islam presents which is close to economic fundamentals as taught in text books of conventional economics with the difference that Islam has no place for interest. Capital must be brought in on the basis of equity and not as a debt. The debt should always be at par. Islamic approach is asset based equity finance as against the debt-based finance with assured premium on the debt. Finally, Islam leaves no scope for the hegemony, like that on US dollar which gets undue benefits of international financial transactions. Every benefit should be due and properly earned.
[waquaranwar@yahoo.com]