It seems Indian Prime Minister Modi’s handling of his finance ministry is just as novel and subtle as the foreign ministry. Surely nobody in the BJP – contrary to positions taken in public – still believes banning some of those banknotes so suddenly was a smart idea. The market definitely doesn’t think so. The rupee, which Modi said on the campaign trail would forever strengthen like the party and the country, has now hit a record low – despite repeated intervention from the Reserve Bank.
Unfortunately for Modi, though, it’s not just the failure of his policy that has sent the rupee through the floor; the international environment hasn’thelped much either. The Indian rupee held firmer than most Asian currencies following the Trump shock – which rattled markets across the globe – but subsequent expectations of an increasing interest rate regime in the US has sent money flushing out of emerging markets and into the dollar. Trump has promised an expansionist fiscal policy, which means higher inflation, etc, and higher interest rates. The timing too, therefore, has hurt Delhi. But, more importantly, he ignored India’s demographics. Much of the country is pretty far from an ATM. And to give just one example, farmers stuck with currency that is suddenly not legal tender have driven themselves, and all associated markets, down. And the rot is not restricted to agriculture, of course.
Far away from the world of finance, Modi is not doing too well on the political front either. The ‘isolate Pakistan’ angle is no longer playing out so well. And Kashmir is a complete disaster. There’s only so long these strong arm tactics can continue in face of a clearly indigenous uprising. And that has meant, not so surprisingly, uproar in parliament. This should be a soul searching moment for Modi. Why exactly, he should ask himself, is his stock losing currency, much like the national currency itself?