 Hello and welcome to NewsClick, today we have with us Prof. Prabhat Patnaik and we are going to discuss what could be seen in some quarters as a rather dangerous fall in the rupee. Prabhat, various people have commented the rupee slide is not going to be good for the Indian economy. Some people have said the slide is well not 12 to 13 percent, it could be 8 percent and there are also conflicting remarks about whether it is good or bad for the Indian economy. Some saying it is not so bad, some saying no it is bad. So broadly what would be your take on the depreciation of the rupee itself? You see the problem with any depreciation of such a currency is that you don't know where it is going to stop because any such depreciation sets up expectations of a further depreciation which basically means that you have an outflow taking place. And it can continue to slide. It can continue. As has happened in many countries, now I think there was always a problem about the Indian growth story, namely it always was accompanied unlike the Chinese by a current account deficit, a persistent current account deficit. This was financed for quite some time because of the inflow of finance from abroad particularly from the US and that was made possible because on the one hand the US interest rates were close to zero because they were trying to revive the economy in the wake of 2008 while in India the interest rates were much higher. Prior to that it was made possible because Indian economy had opened up for the first time. There were all kinds of opportunities that international finance saw in an economy either too closed opening up. So till now they had managed but now there is a sea change in the situation because in the US interest rates have started going up and the Fed has announced that they are going to go up further. And at the same time because of the fact that you know Trump's protectionism has introduced a degree of uncertainty about the future of this whole globalization project, oddly enough you are having a flow of finance from all over the world to the dollar. It's remarkable that actually whenever there is any uncertainty finance flows to the United States because this is home base. So dollar gets strengthened, oddly enough after 2008 when the US economy was in a crisis actually from all over the world dollar went to the US. So these two facts arise in the US interest rates and uncertainties about globalization have actually meant that the dollar is strengthening with every all currencies and particularly currencies like rupees where actually the current account deficit was persistent are very badly hit because of this. There is no limit to it. There is no reason to believe that at some point a rupee is going to stabilize. I think this notion of an equilibrium exchange rate where it would stop is something which is completely untenable. So that way is very serious because after all every such thing basically means inflation rises in the country. It means that many of the Indian companies who have borrowed abroad their balance sheet come under stress because obviously they're kind of you know liabilities. Repayment liabilities go up relative to assets and that creates further expectations of economic difficulties in the country and therefore further tendency to outflow from the country. Just one point that I wanted to make because you were talking about the balance never happens also in terms of export import what we export may be flexible but what we're importing a large component is oil yes there is no flexibility that's right unless you want to constrain the economy badly on energy terms and the second is also the oil prices are also going to go going up yes and that's not because of the Indian economy that's because of the much larger issue that's just you have a double-bind on this that balancing in terms of expectation theoretically is a problem but also in real terms this time the balancing looks rather difficult. Those who argue that actually this is good for the economy base themselves on the belief that some point that this is good for exports but you see exports take a long time to I mean you know there is you know that there's a very long lag if at all there is any positive effect of the exchange rate on exports that takes a very long time to manifest itself and during that you can have disastrous falls in the value of the currency also if the fall that is taking places across a set of countries we export similar goods that is also not happening because you are seeing rebalancing or changing terms of the dollar to other currencies which are very similar to India's India might be doing a little bit worse in that sense but it is not significantly different for others and you add to it the US protectionism then of course matters are even worse you know you also talked about the fact that what it means for the Indian companies that the Indian companies could have rising now crisis of their on their balance sheets because of the repayment obligations having borrowed in good times shall we say and already with the non-performing assets of the banks that we see this could worsen the crisis of the of the sectors absolutely Indian companies borrowed precisely when interest rates internationally were much lower compared to India but now the exchange rates are actually negating that particular benefit in fact it becomes the interest rate is much more than offset by the currency so even for capital private capital in India things don't look so good absolutely and therefore also for the financial system because after all they don't only borrow from abroad because the Indian financial system is also if we look at the management of the economy the last four years my body government would we say that fact that we have had very little industrial growth very little job growth manufacturing growth has been very poor the farmers have not benefited clearly because of the crisis that you see that this in fact is going to add to this crisis yes you know or I would say that the current crisis is going to add to that because what's going to happen now you know that that the economy of late has not been functioning very well but at this moment with inflation now picking up with balance of payments becoming unsustainable and with as you said in the world economy oil prices beginning to rise because of the agreement within OPEC India is particularly badly placed and therefore on top of all the other problems unemployment and so on if you have inflation rising then this is really going to create great hardships as far as the people are concerned you see the government doesn't seem to have any idea of how to tackle it because the measures they have announced are just not enough there is somewhere an implicit view perhaps that at some point is going to stop itself but that as I said is something which simply is not to happen let's put it this way mr. jetless economics which seems to be doctoring the facts and as I have I think said in one of the news click discussions he should really get the fiction award of the year in the way he's been presenting the facts of the economy absolutely and and you know they have now for instance unemployment is something on which whatever data we had now you can't rely on any information about what's there's completely suppressed information about employment and as was in fact the the the parliament's estimate committee headed by Murali Manohar Joshi itself has come down heavily on the government's release of data and the information so apart from what it has done to the economy what it has done to the Indian statistical organization absolutely which was built absolutely that is something which really is very tragic it was one of the finest statistical systems anywhere in the world and what has happened to it in the last few years is really quite disastrous one feel really sad about it you know Prabhupada I as you know come from very different discipline but statistics is the one which is common between the two and we have had professors in different places of the world actually talking about that this part of probability calculus is only understood by Indians and that was really because of professor Mahalini this and the Indian statistical institutes a statistical organization and sampling you know these interpenetrating subsamples on which the NSS was based was a remarkable thing and such large samples anyway you know where had in the world you know so it's a it's a twofold tragedy one is a tragedy to the economy of not using data in a way that you do the planning and the other is of course that you destroy the database and it's a tragedy to democracy that people don't get to know the information about the economy so quick prognosis the next one six months and not doesn't look to be going to be good for the economic point of view because given the uncertainty with what's happening in West Asia Saudi Arabia the Khashoggi case and the fact the Saudi Arabia now is in trouble and they've been threatening to let the oil price rise even further now if that happens we are going to be very serious trouble because also additionally the the the the harvest may not be very good in which case the inflationary pressure will be even greater than just warranted by the depreciation of the currency any quick thoughts on what the government should be doing well I think firstly it is impossible to sustain the Indian balance of payments without some kind of import controls in other words I think if we are going to overcome this current account deficit there has to be direct control of imports last time when we were in such a crisis in 2013 the government had controlled gold imports and quite apart from the direct impact of it it also gave a signal that really the government is doing something and and and it actually spec checked the speculative move against the rupee so I think direct import controls are essential and likewise I think it would be good if petrol prices petrol product prices are brought down but on the other hand there is some kind of a direct control and on petrol product distribution I mean this can take the form for instance in many Southeast Asian countries you have a situation where you have car pools that you know you cannot just have one person driving a car and using up enormous amounts of energy or when we had odd even that was also a way of petrol product rationing so we have to have direct control and petrol product use direct control on on on on on imports and direct control and prices so I think all of which really represents a paradigm quite different from the neoliberal one thank you Pramath of course this is probably not the direction this government is going to go so these are the issues that need to be brought back to the agenda of the country if we are if we are open to the idea that we are actually entering rather choppy waters of the economic front thank you very much for that for being with us and be with us in news click do come and visit our website and watch our YouTube videos