Ad hoc steps to check the decline of the rupee must not end there. Analyse the statement in the context of the fundamental reasons behind depreciation and the recent interventions by the Union government to arrest the sharp decline in the currency value. (200 words)
Refer – The Hindu
Enrich the answer from other sources, if the question demands.
IAS Parliament 6 years
KEY POINTS
· The Union government has recently announced a list of measures to arrest the sharp decline in rupee.
· It includes –
1. Steps to curb the import of non-essential goods and encourage the export of domestic goods to address the rising current account deficit.
2. Removing restrictions on foreign portfolio investments.
3. Encouraging Indian borrowers to issue rupee-denominated ‘Masala bonds’.
· Also, the manufacturing entities will be permitted to avail ECB facility with minimum maturity of one year, instead of the earlier limit of three years.
· These ad hoc steps to avoid an immediate crisis in the external sector, however, should not deflect attention from the more fundamental reasons behind the decline of the rupee.
Fundamental reasons
· Failure to boost exports over the years.
· Failure in finding sustainable domestic sources of energy to address the over-reliance on oil imports.
· The depreciating rupee is also a symptom of persistently higher domestic inflation in India.
Way ahead
· A long-term plan to remove policy barriers in the promotion of export oriented sectors needs to be framed.
· Policymakers must look at more ways to reduce the dependence on crude oil imports and invest more on alternative energy.
