India should approach IMF to arrest rupee plunge: Rajiv Kumar

With rupee scaling new historic lows against dollar every day, the spectre of India knocking the doors of the International Monetary Fund (IMF) to seek a bail out is just a matter of time.

Speaking with Zee Media’s #BBV, ex-FICCI secretary general Rajiv Kumar says current inflationary tendencies are a result of lack of supply side reforms.

Zee Research Group/Delhi

With rupee scaling new historic lows against dollar every day, the spectre of India knocking the doors of the International Monetary Fund (IMF) to seek a bail out is just a matter of time. While the establishment is still in denial mode with the likes of Planning Commission deputy chairman Montek Singh Ahluwalia still ruling out the IMF option, independent voices like former FICCI secretary general Rajiv Kumar believe the time has come to bite the bullet to rescue Indian currency from going down the drain.

In an exclusive conversation with Zee Media’s Amish Devgan in Bharat Bhagya Vidhata’s ‘Mudda Aapka’, Kumar says the time has come the government should approach the IMF to rescue the plunging rupee. Not only that, Kumar suggests three key measures to improve the country’s economic situation.

But, first priority should be to approach the IMF and the delay will only worsen the situation.

“The government should immediately approach IMF to stop rupee plunge and it will send positive signals to the market that we are ready to bite the bullet.”

Kumar also thinks that India could have better managed the 1991 econmic crisis if it had approached the international lending body in 1989.

While a loan from the IMF is a short-term solution, the crisis that haunts India economy cannot be ward off without carrying out massive supply-side reforms, particularly cutting out the middleman in vegetable, fruits and dairy chains. The reforms also entail abolition of the Agriculture Produce Marketing Committee Act. Last, but not the least, Kumar thinks the Food Security Bill should be scrapped to restore investor confidence.

The low confidence in the economy after 2010 has seen decline in investments.

“Between 1998 and 2007 the supply had increased manifold. But, after 2010, we have created a situation where investors have been spending more abroad than in the country,” Kumar said.

To dismiss the current inflationary tendencies as a demand side problem is wrong diagnosis. Instead, as Kumar asserts, it is the result of supply side irregularities.

“There is confusion among economists today that inflation is due to rise in demand. This is only a myth because in a poor country demand will always rise. In our country the main reason for inflation is shortage of supply.”

Nowhere the problem is more glaring than food supply chains which have resulted in steep escalation in prices of essential food commodities. Data is self-explanatory in this regard, stressed Kumar.

“In the history of modern India, perhaps it is for the first time that the food inflation has been above 10 per cent for more than 60 months.”

Blaming external factors as most of our politicians do won’t help tackle the problem at hand. Tough measures must be adopted to address the issue.

“The inflation has come because of our own mistakes but unfortunately our politicians do not want to admit this. They (Politicos) always blame external factors for inflation. But, taking correct measures is the near of the hour,” he said.

The current legislative drift and acrimony won’t do India any good. Our politicians must behave more responsibly and be accountable.

“Our leaders should work diligently to deal with rising inflation,” Kumar added.

Freebie-culture or the politics of dole must be shunned and focus should shift to capacity augmentation and skill development, stressed Kumar while responding to a question from audience. Governance must improve so that we don’t have to cope with rising prices of onion.

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