While all eyes were on Article 370 and the removal of the ‘special status’ for Kashmir on Monday, the momentous fall of the rupee escaped our attention. Over a single trading day, the currency plummeted 113 paisa or 1.62% against the US dollar, breaching the psychological `70-to-a-dollar mark, and signalling the biggest single-day drop in the last six years. The obvious trigger was the renewed trade war between US President Donald Trump and China, with the former labelling China a “currency manipulator”. China, meanwhile, let the Yuan tumble below the 7-to-a-dollar barrier, settling off alarm bells.
Monday was the third straight session wherein the rupee fell, going down 194 paisa to the dollar over the three-day cycle. Money exiting from the stock and currency markets seems to be having a negative effect too. The Sensex crashed 700 points on Monday, finally settling 418 points down after foreign portfolio investors (FPIs) withdrew over `2,000 crore from equities on Monday. This was after high expectation but little response from the government on their tax surcharge woes. Forex traders also pointed to the events in Kashmir, where the change in status from an autonomous state, to a union territory, was likely to generate continued political tension and uncertainty.
Business in general, and short term investors in equity and currency markets in particular, look upon strife, or political turmoil of any form, as anathema and they try and avoid it if they can. We in India have little control over US-China trade wars and the continuing negative international environment. But unfortunately domestic conditions too have become unpredictable. The exorbitant tax surcharge and a slowing economy has taken a toll on foreign investment. Now, political events are adding to the tension. Kashmir has been put on the boil with a concentration of over 8 lakh troops and the Northeast is nervous over the National Register of Citizens (NRC). This is an explosive cocktail, and it is about time the government returns to business as usual.