(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Jeff Glekin
MUMBAI May 10 (Reuters Breakingviews) - What's worse than a
policy which scares off much needed foreign investors? A scary
policy that's also ineffective. A new Indian rule requiring
exporters to repatriate half their foreign currency manages to
If the fear of a fast falling rupee had led Indian exporters
to hoard large sums of cash in hard currencies, then the Reserve
Bank of India's (RBI) move might make practical sense. But by
the RBI's own estimate, this change will only bring back between
$2.5 to $3 billion of capital. That's loose change in comparison
with India's $185 billion annual trade deficit. To be fair to
the RBI, the change will prevent exporters from building up even
larger stashes of cash. Seen in that light it may be more
prevention than cure.
The rupee is certainly under pressure. The ballooning trade
deficit means it has to run just to stand still - without steady
capital inflows, the currency will collapse. And without a
steady currency, it is hard to attract foreign capital. Things
keep getting worse, India's exports for the month of March fell
by 5.7 on a year on year basis. The first time they have
declined since 2009. The Indian rupee suffered its biggest daily
percentage fall in nearly five months against the dollar on May
But constant tinkering with policy does more harm than good.
Recent flip-flops over tax laws spooked portfolio investors. The
rules have changed on cotton exports so often that no one can
now remember if they are banned or being promoted.
If New Delhi really wants to tackle the trade deficit, gold
imports are a much better place to look than industrial exports.
The prime minister's economic advisory council estimated that
India imported $58 billion of the metal in the year ending March
2012. But a sensible decision to tax imports of gold has been
partially overturned by India's indecisive policymakers.
India needs imaginative policymaking to keep foreign
investors keen and to tackle its twin trade and fiscal deficits.
The latest tinkering is yet another example of counterproductive
- In a move designed to stem the decline of the Indian
rupee, the Reserve Bank of India (RBI) announced that exporters
will be required to sell half the foreign currency in their
accounts on May 10.
- The rupee was trading at 53.27 to the dollar at 12.32
Indian Standard Time, only slightly higher than the previous
day's close at 53.85.
- The RBI has been taking administrative measures and has
also been intervening in the markets to support the rupee in
recent sessions, according to dealers. It made similar moves to
stem a tumble in late 2011, Reuters reported on May 10.
- Exporters will need to convert between $2.5 and $3 billion
dollars into rupees from their foreign exchange accounts
following the Reserve Bank of India's directive, a senior RBI
official told Reuters.
- India's trade deficit for April was $13.4 billion. Annual
exports fell 5.7 percent to $29 billion in March, their first
fall in four months as demand weakened in the United States and
- Reuters: India curbs exporter fx holdings to lift rupee
- India exporters need to sell $2.5-$3 bln after RBI
- For previous columns by the author, Reuters customers can
(Editing by Edward Hadas and David Evans)