The ministry of truth recently released the following video on its propaganda social media accounts so as to justify (or rather brainwash the gullible) the recent slide of rupee’s value to lifetime low:


1. Foreign exchange reserves rose to $425 billion at the end of 2017-18 compared with $304 billion in 2013

All said and done, yet, we have rupee at record lifetime low. The only silver lining we have is India’s robust forex reserves. Always has been.
This “growth”, which Piyush Goyal so eloquently portrays as “achievement” is not spectacular, but below average. Forex reserves have shown linear growth over the years, so to claim it as “our achievement” is just a political tact.

Further, India’s forex reserves are not growing through exports but primarily through remittances, of around $70 billion per year. It is not an export-led growth.


Forex Data

A chart of RBI data on India’s forex reserve growth.


One can go as far as to say that even if there’s no government, India’s forex will continue to grow (possibly faster than ever, in that case).
Modi government’s socialist policies, irregular tax structure, and pure nonsensical experiments like demonetization have made India’s economic outlook unstable. If Modi government keeps up, these reserves will vain as soon as they came in. Investors want stability – in policies and in tax environment.
2. Current account deficit narrowed to 1.9% of GDP.
(From 4.8% of 2012-13)
CAD is not exactly a measure of India’s exports. We can never be sure if shrinking of CAD is a good thing – it could mean so many things, depending on what “component” of the CAD equation is “shrinking” or “growing”. It could mean slowing relative consumption and low domestic demand, which of course, will tilt the CAD in favor of positive, but it is not a good sign for India’s economy, for certain, as Piyush Goyal tried to portray with his numbers. It could also mean that Indians now have less money to spend on imported products.

It is relative consumption, and one country’s surplus is another country’s deficit. Sometimes, trade deficit propels trade surplus as it gives much-required capital in hands of producers. But that is not the case with India’s current account deficit.
In fact, India’s net growth in forex reserves is less than $70b per year which shows that imports are strongly exceeding exports, as reflected in the CAD.


Government spending


Tell them X is bad.
Then tell them you reduced X.
There, you have shown them you are doing good work.

Actually, that is exactly the story of Trade Deficit/ BoT, all along.

3. The fiscal deficit came down to 3.5% from 4.5%.

Let’s consider this in perspective. After the disaster of demonetization, Modi government introduced GST and other whole new myriads of taxes, and consequently, government’s tax base has widened. Even after such extreme steps, the fiscal deficit has dwindled only a bit, and it is rebounding. But make no mistake, the fiscal deficit has not come down because of reduced government spending. In fact, Modi government has doubled down on socialist welfare programs and dole-outs. Per capita debt of the country has increased, and with election season nigh, you can safely assume, the government spending is only going to increase.

And to this, we have not even added the grand “bailouts” that the socialist republic of India will be handing out to nationalized banks from taxpayers money by adding new debts. Increased spending will not only hurt India’s rating but will also put the country in more debt.

Whence it follows that Modi government is more interested in putting out face-saving propaganda instead of focusing on putting the economic administration of the country in order.


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