India: the rupee rout continues

published 29 August 2013

India continued to bear the brunt of the emerging-market sell-off this week. On Tuesday, the rupee slid by around 3% against the dollar, its worst one-day drop in 18 years. On Wednesday, it fell even further, reaching a new record low of almost 70 to the dollar. The currency has lost around 15% against the greenback this month and a quarter since early May. The benchmark Sensex stock market index has slid by almost 7% this month.

What the commentators said

The latter was in focus this week. The government passed a Food Security Bill. It will sell subsidised wheat and rice to the 1.2 billion-strong population. This revived fears that the government "will be tempted to launch a flurry of fresh populist spending ahead of elections" due by May 2014, noted Swati Bhat of Reuters. The plan is to keep the fiscal deficit to 4.8% of GDP this year, but doubts are growing. According to Kotak Institutional Equities, the subsidies could cost a third more than foreseen.

This crisis will pass, said Sharma. But don't expect a "meaningful turnaround" in India's fortunes until a new government is in place.

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