The caretakers have probably got to be given credit for trying with the rupee. Unfortunately, neither they nor the forces behind them have been able to change the circumstances which indicate that the rupee is going to slide downward once3 again, because the basic issue of the economy has not been fixed, and there is no indication that the economy is going to turn around any time soon. The rupee’s reversal was managed through a use of strong-arm methods, indicating that previous such attempts had been justified, and that a true free float would leave the rupee prey to speculative forces. The crackdown on moneychangers, thought to be behind this speculative driving down of the rupee, led to a drive against illegal foreigners, mostly Afghans, and the uncovering of smuggling networks, because of which US dollars and other foreign currencies were bleeding to Afghanistan. Those networks were not possible without those administering the border.
Another effort has been to bring in foreign direct investment from the Gulf countries through the Special Investment Facilitation Council. However, foreign investors, even those courted so assiduously by the caretakers, are hanging back. The reason for this is a wait-and-see policy. Before putting up good money, foreign investors want to know with whom they will be dealing. Theory appear to be holding back until elections are held. Now that the February 8 date seems reasonably certain, it now seems clear that an elected government will be managing the country and the economy. While the caretaker government may have carried out some cosmetic measures, the effect of delaying the elections, which have gone beyond the constitutional timeframe, has been to increase pressure on the rupee. The prolonging of the caretaker period has thus helped those very forces harm the economy which have boasted that they were fixing.
The problem is simple. Remittances are falling, as are exports. Foreign direct investment is also not coming in. Payments of all sorts, from the IMF, to the commercial banks, are falling due. LCs for oil and essential imports are falling due. The government will feel the defence of the rupee will lie in tightening LCs, which are already tight, thereby strangling industry and thus exports. Holding elections will not guarantee a solution, but delaying them guarantees trouble ahead for the rupee.
