The free fall that the rupee experienced in the last couple of months spooked the markets, the investors and the government. The government constantly kept assuring the markets that it was only an aberration but the reality is different. It definitely is not a recent phenomenon.  

Last year in May, the rupee depreciated to 55.26 to a dollar as against a level of 44.04 to a dollar in August 2011 marking an over 25 percent decline. It touched a record low near 69 to a dollar in August this year and the government did not just fail to take proactive measures but also failed to react appropriately to tackle the crisis.

The external factors did contribute to the currency crisis but they were merely additions to the internal problems which the government failed to identify and eliminate.  Domestic factors including food inflation, continuous petrol price hikes, and unstable policies of the Centre made the investors, both domestic and foreign, uncertain who then started selling off the rupee.

Lack of political leadership and hence, the absence of political will led to loss of investor confidence. So along with the foreign institutional investors (FIIs) who started pulling their funds out, our domestic businesses also decided to flock to foreign countries in search of better business opportunities.

This reverse flow of capital out of the country has happened on two counts— corruption and governance deficit.

One of the most glaring examples for this is that in spite of having some of the largest coal mines in India, we have to import coal which costs us around $16 billion. So, if one is to look at the present CAD of $87 billion, coal imports contribute 18 percent. This is because the allocation of coal mines was done in an unfair and questionable manner by the UPA and finally, the honourable supreme court had to cancel these allocations.

Gold is another commodity that has led to the ballooning of our import bill. We are the largest consumer of gold and even with 17 gold mine fields in the country, gold is our second largest imported commodity. This only highlights the policy paralysis and lack of foresight of the government which has failed to think of innovative ways to explore domestic gold. And instead all it does is increase the import duty on the commodity. Gold imports went up from $ 41 billion in 2010-11 to $54 billion in 2012-13 and share of gold jewellery exports in total gold imports by value decreased from 41 percent in 2008-09 to 29.2 percent in 2011-12. Clearly, the government missed out or chose to ignore these warning signals. Had it intervened in time, it would have saved $12-15 billion annually.

At $170 billion, crude oil and petroleum products constitute 35% of our import bill. It has been common knowledge that with disturbances persisting in central and west Asia international prices of crude oil will be sky-rocketing. The region has been in turmoil for many years now but the government did not take any proactive measures. In the absence of sufficient oil reserves, the government should be looking at alternative sources of energy.

Further, it should adopt a dynamic approach to undertaking oil explorations outside the country. Energy needs regional co operation. Our oil public sector undertakings (PSUs) need to be supported to undertake explorations outside the country. The Chinese premier puts all its might behind its central oil agency China National Petroleum Corporation and as a result, China has been bagging all oil exploration tenders worldwide. It bagged the tender to explore two gas fields in Pakistan’s Sindh province and three tenders in African countries. In contrast, in spite of technical knowhow, ONGC was unable to bid for the African oil fields due to lack of financial muscle and approvals. After having waited enough for us to take up exploration in their oil fields, Burma roped in China because we were unable to resolve pending issues with Bangladesh for building pipelines there. Similarly, Bhutan and Nepal have surplus hydropower which is enough to provide electricity to our eastern states. But as usual, nothing has been done about it because the UPA lacks the political will and vision.

For a very long time now, the farm sector has advocated the use of ethanol to run automobiles. It is a by product of sugar industry and we do not need new infrastructure to produce it. In various countries, automobiles are driven on 85 percent ethanol mix. By just mixing 22 percent of ethanol in petrol and 15 percent in diesel, we can easily cut down up to 18 percent of our oil imports which would mean a saving of $25 billion annually.

The government needs to come up with both short term and long term measures to reduce our import bill. A diesel price hike will have a spiralling effect on inflation which will adversely affect the middle class which is already burdened by factors like unemployment and inflation.

Instead, as an immediate measure the government should allow the usage of ethanol. Simultaneously, it should also import oil from Iran since we use rupee while trading with them and we can also avail the option of deferred terms. This will ease the pressure on imports in a big way. For the longer term, we need to look at alternate sources of energy.

And as if all these commodities were not enough, the government has to depend on foreign countries for fulfilling our defence requirements. Something as basic as the shoes

It is basic knowledge that every challenge needs both short and long term solutions. It is an irony that after 66 years of independence we are still struggling for a basic model of good governance.