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Journalism of Courage
The chaos in the capital markets could be a loud message that India8217;s immunity from the Asian flu is a thing of the past. Yet even if it is the world capital markets 8212; Wall Street and European stock markets have taken a beating alongside Asian ones 8212; that have immediately told on Indian bourses, there is no absolving the BJP government of having stretched its luck. It is worth pondering why India escaped direct damage from the first attack of the Asian flu. Being still a relatively closed economy worked in its favour. The central bank stepped in early on to convey that it was determined to safeguard the rupee at a time when India might just as well have gone the Asian way. It was sharply criticised for trying to put a floor under the rupee and choking the economy by causing interest rates to rise. But this newspaper had argued even at the time that the choice was between compromised growth and possible disaster. It seems to have been vindicated.
Yet that is not where the trouble lies this time around. Theovervalued rupee had to be left to find its level once the worst of Asia8217;s troubles seemed past. In any case even comfortable forex reserves will not suffice to bolster a seriously threatened currency and raising interest rates is not an appetising option. In fact is hard to say that sound policies will keep the crisis at bay when Japan8217;s economy grows worse every day and threatens to drag the rest of Asia with it. That said, this government has done more than its fair share to create poor expectations. Indeed it may be premature to conclude that India has been overwhelmed by Asia. There are ample reasons to seek at home just now for crashing markets, apart from the looming payments crisis that is said to have partially fuelled Monday8217;s fall. A more proper diagnosis perhaps is that poor economic expectations, created by sanctions, a bad Budget, and general economic ineptitude have combined with world developments to wreak havoc. The bottom line however remains that all this make India very vulnerable to afresh Asian onslaught.
