Chief Minister Narendra Modi explains how this revolutionary transformation happened over a decade. In 2001 Gujarat was co..
Leadership, Corruption and High Inflation : Rupee Speaks

Long term India story remains intact. India is the 2nd fastest
growing country in the world. US is not growing and eurozone is
extremely uncertain and in such a scenario the world is looking up
to India and China. We have all heard these numerous times and most
of us are firm believers of these statements. I am firm believer in
all of the above and have never had any element of doubt regarding
any of the above statements, except when I look at the behavior of
rupee over the last few months:
Rupee vs some currencies Since Jun 2011
vs USD: over 9% decline (from 45.07 on 31 May to 49.28 on 1
Nov)
vs Euro: over 5% decline (from 64.335 on 31 May to 67.154 on 1
Nov)
vs GBP: over 5% decline
vs Thai Bhat: over 7% decline
Why would large institutional players in there right frame of mind
sell the currency of the country with the 2nd fastest GDP growth.
Infact, a report by a very well respected financial services firm
(amongst the largest in its domain) projected India’s GDP growth to
exceed China’s by 2013. Why would the rupee decline against all
major currencies in such a scenario? What explains the decline of
rupee against euro?
My best guess is that world is taking note of the existence of some
bumps in there rosy ride to the “Great India Story”. People are
realizing that not everything is as hunky dory as it was made out
to be. In my opinion, there are some real risks which pose a
serious threat (not just a bump) to the India Growth Story in the
short to medium term:
Quality of Leadership
The current leadership in the country just refuses to move and act.
It is beginning to be seen as ineffective, clueless and possibly
incapable. People incharge have either become complacent or are
inefficient. We keep reading statement about policy measures being
on a standstill and the government seems t be dragging its feet on
more than one issues. The Prime Minister is seen as weak, his
current boss is sick, future boss is probably seen as somebody
lacking direction. The other leadership alternatives are not very
encouraging. An outsider, can possibly see it as a vacuum
situation. This is not what people had in mind when the investors
gave a huge thumbs-up to the 2009 lok sabha election results
(recall stock markets being locked in upper circuit because of
election results)
Corruption
CWG scam has globalised India’s domestic issue of corruption. We
were never the best country in any of the corruption rankings
published, but CWG truly showed the world what we are truly capable
of in the highly competitive field of corruption. It helped put
corruption in public life in India in global spotlight. Other scams
which followed immediately have not helped and probably played
spoil sport, more due to their timing than the scale and magnitude.
Anna’s anti corruption movement and the government’s inept handling
of the same probably made things worse.
High Inflation
Domestic Consumption – probably the theme most commonly used by
Investment advisors and bankers to sell India story to investors is
at risk in the short to medium term. Infact, the report I mentioned
earlier mentions that the domestic Indian market is suppose to
cushion the impact of the eurozone debt crisis on India. My
understanding of domestic consumption market is increase in
spending by common people like me (supported by rising income
levels). With inflation refusing to budge & the average consumer
reeling under high prices of basics (food and real estate which is
roti, kapda, makan), I wonder who is consuming & how long can such
consumption last? An average household with normal income levels is
struggling to make ends meet and the lucky few with 6 or 7 digits
monthly income will sooner or later start saving for difficult
times ahead. What happens to the Great India Consumption Story in
such a scenario?
All of the above are issues which individually should not pose a
long term problem. But, in combination with each other they
threaten to present serious road blocks to the India Growth story.
Infact, one is probably leading to the other. Lack of leadership is
fueling corruption, which in turn is probably contributing to rise
in inflation. With living costs rising and honest official is not
left with much of an option and which leads to corruption
rising.
I am not a pessimist or a non-believer in the India story. Infact,
I can see opportunities all around me which is what prompted me to
take the plunge into entrepreneurship. But my sense is that not
everything is rosy in the short to medium term in India and we need
to be a lot more cautious and aware of the risks related to a
global crisis this time around. If the world was to go through
another major crisis (eurozone default being the trigger), we will
not be as insulated as we were in 2008. We escaped with minor
scratches then, but if we do not mend our ways, we will probably
sustain major injuries this time around.
article Rupee Speaks by Siddharth Gupta
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