Rajeev Srinivasan looks at the reasons behind the debacle. The
currency exchange rate is a representation of the market
sentiment about the strength of a nation's economy. As such, it
is often ruthless in indicating what the rest of the world
thinks about a country's economic stewardship. Thus, when the
rupee plummets, it is a clear indication that the world thinks
India's [ Images ] economy is in bad shape, and that its
prospects for the future is cloudy. The proximate cause is the
Budget, with its Black-Swan event of a 50-year rollback and
retroactive taxation of deals. This strengthens the notion that
India is still a Banana Republic. There is also the spectre of a
balance-of-payments crisis as in 1991, which also followed a
spending binge. India has a healthy foreign exchange reserve of
some $330 billion, but this is not as much of a cushion as one
might think: It may only pay for some months worth of imports.
What is also striking are the following numbers from Shankar
Acharya in Business Standard ('The