As the Indian rupee hurtles in free fall, there is widespread concern about the fate that awaits it. If the government is also concerned about the depreciation of the rupee against the dollar, it is to be welcomed. However, if the steps it contemplates are fraught with danger, they are a matter of greater concern. Reports suggest the government has been thinking about selling sovereign bonds abroad to stem the rupee’ decline. The State Bank of India has reportedly turned down the government’s suggestion to float a quasi-sovereign bond like its Resurgent India and India Millennium bonds issued in 1998 and 2000 respectively for its own accounting reasons.
While there is no doubt that such bonds would be sold out in no time, it would also expose the economy to dangers. The experience of several European countries, which borrowed money far in excess of their repaying capacity is too recent to be forgotten. A reason why India remained insulated from the global meltdown of 2008-09 was because its capital controls restricted the amounts which the government and companies could have borrowed globally. That is why India did not face the devastating downgrades that damaged European economies, though it suffered and continues to suffer the after-effects.
It’s true that each time quasi-sovereign bonds were floated, the economy rebounded. Economic reforms played a greater role than the mere infusion of money that the bonds ensured. The lesson is clear. The solutions for India’s economic problems can be found within. It’s common knowledge that reforms have remained stalled for quite some time. The attempts to kick-start reforms were too half-hearted and bereft of political consensus. Electricity and coal are areas where reforms are urgently needed. If imaginative and ambitious infrastructure projects are initiated, investment, both domestic and foreign, will automatically come. Investment has not been forthcoming for want of will on the government’s part.