Congress: Falling Rupee & uncontrolled CAD is a failure of ‘Modinomics’ 

Last ditch attempt by PM Modi and Finance Minister Arun Jaitley to check rupee devaluation and control CAD reflects the skewed economic vision that has failed India’s economy, says Congress

PTI Photo
PTI Photo

NH Web Desk

Continuing its scathing attack on the ruling Modi government, the Congress leader Randeep Surjewala on Sunday focused on the plight of Indian economy and flawed economic policies of the BJP government.

He said, the Modi Government has utterly failed to take stock of the following five imperatives:

  • India’s current account deficit (CAD) has widened to a four-quarter high i.e. 2.4% of gross domestic product (GDP) in the April-June quarter of 2018-19 from 1.9% in the January-March quarter of 2017-18.
  • The ‘Merchandise Trade Imbalance’ is also expected to rise to USD 188 billion in Financial Year 2018-19, compared with USD 160 billion in Financial Year 2017-18 (SBI Report).
  • The ‘Trade Deficit’ has jumped to USD 18 billion in July 2018 on account of falling export performance.
  • In first quarter of Financial Year 2018-19, the net outflow from India of portfolio investments was USD 8.1 billion as against a USD 2.3 billion inflow of portfolio investments in the fourth quarter of Financial Year 2017-18, reflecting no-confidence in Modi Government’s economic policies.
  • A ‘Flawed GST’ & ‘Demonetisation Disaster’ have adversely impacted and demotivated global investors.
Highlighting that the ‘Net Estimated Cost’ impact of rupee depreciation (71-72 level) on India’s economy in second half of Financial Year 2018-19 is ₹1,44,000 Cr, Surjewala said that this has caused a liquidity crunch in the financial system, which is currently at a deficit of around ₹215.7 billion (May-June, 2018 as per Bloomberg Economics India Banking Liquidity Index) from a surplus of ₹5.5 trillion in March, 2017.

Congress spokesperson Surjewala said the steps the Finance Minister has taken to check rupee devaluation “are superfluous and ...will not have the desired impact.” He quoted particularly the government’s silence on fuel tax cut, and point-wise raised doubts over certain economic decisions of the government:

Silence on ‘Fuel Tax’ cut;

Expected Impact on Economy: Inflation remains high for the common man on account of 11 lakh crore ‘fuel loot’ that has resulted as Modi Government increased Central Excise on petrol by 211% and on diesel by 443%, besides multifold increase in custom duty. With petrol at ₹81.91 per litre and diesel at ₹73.72 per litre, Modi Government refuses to ease the suffering of the common man.

To permit manufacturing companies to avail of ECBs up to $50 million with a minimum maturity period of one year;

Due to continuous increase in NPAs for last 4 plus years under Modi Government, banks are refusing to finance  manufacturing and infrastructure companies. Hence, Indian companies have to look for external commercial borrowing (ECB) option. As Indian companies buy more dollars, will it not lead to further depreciation of INR against USD and further increase in CAD?

Removing 20% exposure limit of FPI’s corporate bond portfolio to a single corporate group, and 50% of any issue of corporate bonds will be reviewed;

Will allowing Foreign Portfolio Investors (FPIs) unlimited access to any NCD issuance or removing the investment cap not lead to infusion of hot money in certain sectors?

Exception to masala bonds from withholding tax for issuances up to March 31, 2019;

Why has this option been restricted till March, 2019? Is this an attempt to provide a limited window to certain foreign investors to bring hot money into Indian economy for speculative purposes?

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