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The curious case of the falling rupee and Indian elections

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Neeraj Ashok
Neeraj Ashok
Neeraj Ashok is the pseudonym under which I have published an ebook version of the first of my political thrillers from the Kabir Sood series - The Linchpin. As cliche as it may sound, but the most important ingredient for writing fiction is to keep it as close to the real world as possible. This is where my curiosity to stay updated with political current events about India and other countries comes in handy. Please do share your reviews on this article and for my book as well, if you are one of those few who really like reading political thrillers.

In the last few days, we have been bombarded by news around the falling rupee and the rising crude oil prices. Traditionally, both of these are caused by global factors and given our heavy reliance on import of crude oil to meet our day to day demand, both have usually been co-related. However, this made sense only until the market prices of petrol and diesel were subsidized in our country, which is no longer the case. Thus, while rising oil prices will affect our import bill, the entire impact will not be passed over to the government’s fiscal deficit numbers, which means there are other factors at play. To determine what these factors could be, let us recollect when was the last time we witnessed a similar fall in the rupee’s value by answering the pertinent question.

What is common between 2008, 2013 and 2018?

  1. Rapid depreciation in the value of rupee against US Dollar and other major currencies.
  2. The trend in each of these years is hugely different from the average movement of the rupee in the immediately preceding four years.
  3. The time period on each of these occasions is a little over half a year before the national elections.

While the chart here underlines the second point from the above list, the third one is the key point for a couple of reasons. Uncertainty of the outcome of an election can lead to the negative sentiment around the local currency. Secondly, governments are largely infamous for opening up the coffers trying to please the voters before a nationwide election which sends the fiscal deficit numbers for a toss.

Source: https://in.investing.com/currencies/usd-inr-historical-data

Irresponsible fiscal management for 2019 polls is not evident at least for now given the fact government is ready to irk the voters by selling petrol close to the historic highs of Rs. 90 a liter in metro cities, thereby giving more importance to economics rather than the elections. And while the dollar has been strengthening against other currencies as well, the cause of concern for us is the pace at which ours is dropping and why do we experience this just before the Lok Sabha elections.

Couldn’t this be a co-incidence, you ask?

Thrice in as many Lok Sabha elections in the last decade and a half? Don’t think so.

While there are certainly multiple global factors at play as well like the US China trade war, rout in some of the emerging market currencies but given our tag of the fastest growing economy for most of last half a decade coupled with our robust forex reserves, such a steep fall in rupee is surely suspicious.

What fuels this suspicion even more is reluctance of RBI to intervene in the currency market to stabilize the rupee. This is unlike our central bank which is otherwise fairly proactive to stabilize the currency movement in either direction. Even the seasoned traders and market participants have been caught off guard with delayed and subdued reaction by the RBI.

https://in.reuters.com/article/india-cenbank-recordlow/indian-rupee-breaches-72-to-the-dollar-markets-worry-over-mild-rbi-intervention-idINKCN1LM0TS

https://economictimes.indiatimes.com/markets/forex/rbi-defends-72-rupee-per-dollar-mark-strongly-dealers/articleshow/65718742.cms

What is it then, and how does this help anyone?

The only other thing which ties up the rapid currency depreciation, and reluctant RBI intervention are the elections. When the local currency falls, the ones selling dollars and other currencies stand to make a windfall. Whilst for common people like us, this windfall after an overseas trip only enables us to purchase the new alexa device or a chromecast which we skipped while shopping abroad, it works wonders for political parties and their contributors who crave for every rupee they can squeeze in to the next elections. Thus, a falling rupee just before the elections works wonders for them while they bring in the moolah stashed abroad.

Isn’t this another conspiracy theory?

Could well be. But another interesting thing to note here is either a reduction or an outright reversal in the trend of the falling rupee very shortly after the August – September period in each of the years just before the elections (2008 was an exception considering the Lehman crisis unfolding around the time). This explains the currency movement caused by the selling of dollars by the political parties and their contributors to convert to local currency and get their election going.

I am sure if the agencies in our country investigate, a link would emerge proving this theory. However, given the fact this fiasco is not limited to a single party or a particular government, we can be sure of reluctance on the part of government and hence the agencies to pay any heed to this. Until then, as common people we can only celebrate the tiny windfall in case we are holding onto any dollars while it demands more than 70 rupees, or can just end up coughing up more every time we drive in to the fuel station. May be all of this is a cost to buy our right to cast the ballot.

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Neeraj Ashok
Neeraj Ashok
Neeraj Ashok is the pseudonym under which I have published an ebook version of the first of my political thrillers from the Kabir Sood series - The Linchpin. As cliche as it may sound, but the most important ingredient for writing fiction is to keep it as close to the real world as possible. This is where my curiosity to stay updated with political current events about India and other countries comes in handy. Please do share your reviews on this article and for my book as well, if you are one of those few who really like reading political thrillers.
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