STRONGER RUPEE THE ONLY SOLUTION TO OIL INDUCED INFLATION....

Current inflation is not demand induced or wage induced, but "Oil Induced". India imports "Oil" which constitute one of the largest import component. There are only two ways to reduce the import bill - Either lowering Import volume (which will severely affect the growth) OR reduce the import cost by allowing Rupee to rise to its natural level, without RBI's sterilization drive. The second option is growth oriented and also non-inflationary. It is most preferred choice.

Following of my comments appeared in Economic Times which may be of interest to the readers:

QUOTE
Article: Sensex falls to 2008 low; banks, realty plunge
(20 Jun, 2008, 1452 hrs IST, ECONOMICTIMES dot COM)
1
Kalidas,Hong Kong,says:

Regretfully, FM, RBI and SEBI lack imagination in managing India's economic affairs. The solution to India's current problems, including Inflation, lies in stronger rupee, that was hated by the Commerce Minister (who has nothing to do with the finance), RBI and SEBI, who ultimately brought in disastrous P-Note measures with a view to arresting rupee rise. They succeeded in driving out the foreign investor and weakening rupee from Rs 39 to Rs 43 (10%) with the result that India's oil import bill rose by Rs 8000 crores in a flash.

Now, they are wondering why FIIs are getting out of the country. When FII come, they say "you are not welcome" and when they go back home, they plead " Don't go away. Please stay in - you are always welcome".

While EURO rose from low of 0.84 to 1.55 or about 90%, in spite of low growth, Indian rupee rose merely 12% from Rs 48 to Rs 43, in spite of double the growth of EU.

Had India allowed Rupee to rise without intervention, Rupee would have been at Rs 31 at least or by 40% from current level, which would have reduced Oil Import cost by at least Rs 32000 crores. All problems related to oil subsidy would not have arisen had India permitted Rupee to rise to its natural level.

India persistently followed "weaker rupee policy" for over 60 years, allowing it to fall from just Rs 8 per dollar to Rs 43 now. It did not work, and still like obstinate persons, the FM/RBI/SEBI officials go on promoting the concept of weaker rupee.

Why not for a change allow Rupee to rise to Rs 31 or below and see its beneficial effects? On one hand, India is embracing "free market" principles, and in case of rupee, it just throws out of window same ideas.

Such fickle minded officials in FM/RBI/SEBI have to pave the way for new generation people with fresh ideas to mange the country's financial affairs.
20 Jun 2008, 1619 hrs IST
UNQUOTE (Some spellings have been corrected)

Kalidas, Hong Kong
21-06-2008 (Ref: 09-058)