Not a pretty picture on the international trade front. Hot on the heels of the exclusive news report of the business magazine of this very publication, Profit, about how the interbank market has run out of dollars, the banks have, predictably, started turning away international Letters of Credit. There just isn’t enough foreign exchange to entertain them anymore.
The central bank is denying that it has issued any instructions to the effect, but the seemingly coordinated way things are playing out in the banks, there seems to be some regulator instructions.
News like this leads to more panic-buying. The dollar is already trading at 213 rupees. Barring remittances and perhaps international IT-enabled services, a huge number of other exports rely on imports that are value-added out of the country, in some cases, even to the very same countries that we imported the raw material from. The current state of affairs is going to be, therefore, tough for the exporters; compromised exports are going to make the currency situation even worse. A classic negative feedback loop. Things seem more than dire.
There is a short term solution for this. Much like the withdrawal of the fuel subsidies, the incumbent government has to rip off the bandage, and make some tough decisions. Principal of which is going to the IMF and acquiescing to some of their unpalatable demands. We didn’t get in this mess in the first place, they might say; why should we pay the political price? Even if that is true, it is they that are in government. Those at the receiving end of these allegations were gleefully removed through a no-confidence motion. They knew better than others what the economic situation was, specially the League, which fashions itself as an authority of matters economic.
As they say, if you can’t stand the heat, you must get out of the kitchen. The finance minister knows his way around the kitchen, but does he have a stomach to grit out a tough stint?
