It isn’t just the RBI’s rupee rescue act. The current crisis is made up of a reversal of reforms across sectors.
Given the increasing panic that accompanies every government move to control the rupee — whether by the RBI, Sebi or the finance ministry — the ministry would appear to have done well to remind foreign investors that India has never prevented repatriation. Soothing currency markets, however, which have lost Rs 1.75 to the dollar since the RBI came out with its rupee-support measures, is going to take more. To be sure, the RBI’s new governor will need to revisit the extraordinary monetary tightening. But in several other areas, India is not just visibly falling behind in pushing the reforms agenda, it is actually reversing it.
Some part of this is due to genuine anti-reformism registering victories. In cases like the oil sector subsidies, the rupee’s weakening has brought things back to where they began eight months ago when diesel prices were hiked — a fifth of consumption was linked to market-value immediately, and for the rest, a 45 paise monthly price hike was put in place. As a result, overall oil under-recoveries, which rose from Rs 389 crore a day in January to Rs 454 crore in February, began falling to Rs 252 crore in May — they are now back to Rs 389 crore. For diesel, under-pricing which had fallen from Rs 9.03 a litre in January to Rs 3.8 in May, is back to Rs 10.22. Given that the budget has only provided for Rs 178 crore subsidies per day, the balance has to be borne by oil PSUs, making their balance sheets collapse and ensuring they have no funds to invest. A sharp Rs 3-4 hike in diesel prices will not only bring back some semblance of normalcy to public finances, it will give investors the much-needed reassurance that India hasn’t given up on reforms.
In the roads sector, with the government not providing clearances on time or finalising a renegotiating framework to help revive projects that look unviable amid collapsing growth, India has moved away from PPP to old-style fixed-rate contracts for roads where the private sector is no longer taking any risks. In aviation, while clearing more bilaterals and the Jet-Etihad deal, the ministry wants to examine whether air fares are excessive; in pharmaceuticals, despite 30 per cent of the industry being under stringent price