India

A Grim Independence Day for India


Indian Prime Minister Manmohan Singh, right, salutes during an Independence Day ceremony in New Delhi on Aug. 15

Photograph by AP Photo

Indian Prime Minister Manmohan Singh, right, salutes during an Independence Day ceremony in New Delhi on Aug. 15

The Indian government tried to make this year’s Independence Day a special one, despite the country’s economic woes. That was never going to be easy, with the rupee continuing its long slide to record lows. Prime Minister Manmohan Singh acknowledged the problems of India’s economy in his speech at the Red Fort, the Mughal-era citadel in the center of Delhi. “Economic growth has slowed down at present, and we are working hard to remedy the situation,” Singh said as he marked the anniversary of the end of British rule in 1947.

In the days before the Aug. 15 holiday, the government tried to change the subject by publicizing some impressive military breakthroughs. The country activated the atomic reactor for its first Made-in-India nuclear submarine over the weekend, for instance, and followed that up with the launch of its first home-developed aircraft carrier. The 37,500-ton ship won’t actually be operational for several more years, so the debut seemed timed to provide a nice setup for Independence Day.

Then disaster struck. A day before the holiday, an explosion rocked a diesel-powered Indian navy submarine docked in Mumbai. The blast and the fire that followed left 18 Indian sailors dead. India is “deeply pained that we lost the submarine,” the Prime Minister said in his speech. “We pay homage to the brave hearts we have lost.”

At the same time that it was trying to use military wins to distract from the country’s economic problems, the government was trying to stem the currency’s weakness. Over the past few weeks, the finance ministry and the central bank have announced measures to prop up the rupee. The Reserve Bank of India yesterday cut the amount Indian companies can invest abroad: The limit had been 400 percent of a company’s net worth, but on Aug.14 the central bank lowered that to 100 percent. The RBI also curtailed the amount of money Indians can send overseas: The annual limit had been $200,000, and the central bank cut that to $75,000. The central bank has also tried to make foreign-exchange deposits more attractive to local banks by exempting non-rupee deposits of Indians abroad from requirements to keep 4 percent in cash and invest 23 percent in government-approved securities.

The government is trying to discourage Indians from buying gold, too. The country is the world’s largest consumer of the glittery metal—and all the gold comes from abroad. That’s a major source of the country’s trade problems. Last month the government increased tariffs on gold and other precious metals while also increasing taxes on gold.

Not everyone is impressed. In a report published on Aug. 14, HSBC (HBC) economist Leif Eskesen called the steps “a new set of plumbing measures” to curb oil, gold, and nonessential imports and open up for more external debt financing. “Will this be enough to fix the leaks?” he wrote. “We do not think so. Ultimately structural reform implementation is the solution.”

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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