Thursday, June 20, 2013

The difficulty of being Subbarao

Recent article in the Times of India (also reproduced at the end of this mail) about the rupee hitting an all-time low, with some quotes from the chief economic advisor to the government. The quotes are highlighted in yellow, my views follow:

The article:

Some quotes from the article:

The government's chief economic adviser said the finance ministry, RBI and the SEBI are watching the markets.
We will be alert to the development, we do not like volatility and take actions when necessary, Rajan said. 
Rajan said rupee is not in a shambles and cautioned against being overtly pessimistic. 

My take on it: 

One can almost imagine the scene...

Duvvuri Subbarao put down the phone after his daily morning conversation with Chidambaram. "Coffee, get me some coffee" he bellowed. These conversations always put him in a stressful state, a very bad way to start the morning. 'Reduce the interest rates, he says, does he understand anything about macro economics?, I don't want to fuel growth when there is so much inflation', 'the markets are a self-fulfilling prophesy, he says, if you think they will go up, and you talk about it going up, it will go up, he says - he must be thinking about something else - only that goes up just thinking about it'. 

His assistant handed the coffee and immediately withdrew. The whole of RBI knew not to mess around with Subbarao after his daily morning talk with Chidambaram. He continued mumbling as he sipped his coffee. 'And that new economic advisor of his, I thought he would talk some sense - he predicted the 2008 collapse after all, and here he is out-optimisting the optimistic Chidambaram.  We have all the tools, and will use them when required, he says - what tools do we have?  He thinks economics is so simple, like having a set of hammers, tongs and pliers, that all you have to do is go pull out the painful tooth? And what does he mean, we do not like volatility? The markets have tanked fifteen percent in a matter of weeks, is that not volatility enough? Or maybe he thinks it is volatility only when it swings like a yo-yo. And yes, I would certainly like to see his tools - he keeps talking about them - I am very curious to know what they are...'

Duvvuri Subbarao continued muttering under his breath, his mood today was very dark indeed. 'Madam will keep announcing her harebrained schemes, doling out money like it's free - God knows how much trouble I take to create that money. But no, who is to explain macro-economics to them? they think all I have to do is run the printing press, and the money machine will throw out wads of cash for some new-fangled "Rajiv Gandhi Gramin/ Sadak /Parivartan /Vikas/ Shikshan /Garibi/ Hatao/ Khana/ Poshak /Niranthar/ Nischit/ Suraksha/ Pratibhuti /Hak /Suchna" or some such scheme designed to line their pockets and get them votes.  They keep doling out money on one side and they go after Gold on the other - they don't want Indians to buy gold. All of those politicians who talk like this, I would like to know, what do they give as dowry at their daughters' weddings? How much gold do they have in their storehouses themselves? Imposing that duty is only going to increase smuggling, and for every kilogram of gold coming in, other things will be smuggled out, may be drugs.. do they even know the consequences of what they are doing?'

Subbarao  came to the end of his coffee, when the phone rang - Raghuram Rajan on the line sir, said his assistant and put him on. 'Hi Subbarao, why did you not reduce the interest rates, that's what our boss wants. And Madam had a suggestion, the next time we reduce the rates, may be we can call it 'Rajiv Gandhi Byaaj Ghataav Yojana' - it is election time and we need to announce new schemes - boss has asked you to make a presentation on this for Madam.' Raghu did not wait for him to respond, he just continued 'And, by the way, boss is very concerned. We have just made a statement to the press that we are watching the markets. The stock exchange building is visible from your office, right?' 'Um right', replied Subbarao, he did not know where this was going. 'Right then, we are coming over tomorrow, call Sinha also. We are all going to watch the markets from your office window.  And we need to discuss how to boost growth and talk up the markets. Elections are round the corner and Madam wants the markets to go up. I am confident you will be able to present some concrete proposals in this regard.' Raghu hung up without giving Subbarao a chance to respond.

"Whiskey' shouted Subbarao. I need a stiff peg - go and get me one." His assistant ran to comply. 

Nursing his whiskey, he sat staring out of the window, pondering over what proposals he needed to present to Chidambaram, Raghu, and Sinha when they would come to his office on the morrow. The view outside seemed dark and gloomy indeed...

Dinesh Gopalan
mob: 9845257313; blog:

Rupee hits all-time low of 60; will act when necessary, govt says

PTI | Jun 20, 2013, 11.52AM IST
MUMBAI: The rupee trimmed its early losses but was still quoted lower by 83 paise to 59.53 per dollar after hitting 60-level on strong demand for the American currency from banks and importers amidst sharp fall in equity market.

We are not short of actions or instruments as and when the need arises, said govt's chief economic advisor Raghuram Rajan on rupee dipping to an all-time low.

We will be alert to the development, we do not like volatility and take actions when necessary, Rajan said.

Rajan said rupee is not in a shambles and cautioned against being overtly pessimistic.

The government's chief economic adviser said the finance ministry, RBI and the SEBI are watching the markets.

The rupee resumed lower at 59.50 per dollar against the last closing level of 58.70 per dollar at Interbank Foreign Exchange (Forex) Market and dropped further to an all-time low of 60.00 per dollar before quoting at 59.53 per dollar at 10.40am.

Meanwhile, the S&P BSE sensex fell below the 19,000 level due to all-round selling pressure as the rupee hit record low.

The sensex resumed lower at 19,069.20 and dropped further to a low of 18,822.65 before quoting at 18,885.63 at 10.30am, showing a net loss of 360.07 points, or 1.87 per cent from its last close.

The NSE 50-share Nifty also dropped sharply by 124.45 points, or 2.09 per cent, to 5,700.80 at 10.30am.

Stocks fell across Asia after Federal Reserve chairman Ben Bernanke said after a two-day policy meeting that the central bank may reduce bond purchases later this year should the US economy strengthen.

Concerns about the health of the Chinese economy also weighed on sentiment after a survey showed further slowdown in China's manufacturing sector.

Persistent capital outflows from foreign funds also affected the market sentiment. Foreign institutional investors sold shares worth a net Rs 544.97 crore on Wednesday, as per provisional data from the stock exchanges.


1 comment:

श्रीहरी कुलकर्णी said...

Sad but true, I mean that's how the situations are now.