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Indian Rupee and Kashmir

October 2013

By BILAL HUSSAIN

What Indian Rupee weakenbalance-dollar-rupees01ing means to Kashmir? Since, Indian Rupee is the currency of Jammu and Kashmir as well so economically speaking, what impact it has on rest of India, it will have similar ramifications on Kashmir’s economy too. However, the quantum of the hit will vary.

It has political implications that would interest most of the Kashmiris.

Defence Dent

While, the weakening value of Indian rupee has a cascading impact that is not restricted to elites, exporters and importers, it will dent India’s defence imports as well. According to a report in Defense News– the world’s leading publisher of news about military and government– Indian defense spending has taken a hit as the rupee has fallen in value by more than 20 percent against the US dollar since February, when the defense budget was announced.

“Nearly $7.5 billion has been shaved from the current financial year’s allocation of $37.7 billion for defense spending. In February, $1 equaled 54 rupees, and that number has risen to 68 rupees”, the report mentions.

Since overseas weapon and equipment purchases are made in US dollars, more Indian rupees are needed to make those buys. In the current financial year, $16.06 billion was allocated under Plan Head for weapons and equipment purchases. The rupee’s decline means the money available for new weapons has been reduced by $3.2 billion, even lower than the money allocated in 2012-13 at $14.74 billion.

Ministry of Defence sources on record has said that rupee could affect programs such as the procurement of Lockheed Martin C-130J aircraft, Airbus Military A330 aerial refuelers, assault rifles, howitzer guns and torpedoes, and the re-engining of Jaguar aircraft with Honeywell engines. Notably, the defence budget for 2013-14 accounts for approximately 1.79 per cent of the GDP.

Fuel Folies

The defence ministry has asked the armed forces to reduce fuel use by 20-40% as the sharp increase in prices has upset budget calculations, leaving soldiers, commanders and analysts bewildered and worried about India’s overall defence preparedness.

Official sources has said the supplies and transport directorate under the defence ministry recently wrote to defence commands, saying allocation of various fuels would be cut by 20-40% in the current fiscal, depending on specific requirements and unique needs of the army, navy and air force. Rising electricity tariff across the nation too has inflated expenditure on large cantonments and defence establishments.

International crude prices, which have risen 8% in the past week, as well as the depreciating rupee, which is sinking to record lows, have made diesel for bulk buyers nearly 20% costlier than the state-set rates for motorists. While state transport undertakings have happily switched to petrol pumps, the defence forces have no such option.

Experts are worried. “As it is, the frequency of core-level exercises has come down due to limited fuel. Mechanised exercises of defence forces are becoming expensive. If fuel prices go up further, there will be more limitations in training our armed forces,” Lieutenant General (retd) Prakash Katoch, who has co-authored the book India’s Special Forces on record has said.

Defence forces, among the biggest fuel consumers in India, spent over Rs 7,000 crore on petroleum products in 2012-13. This includes Rs 4,090 crore spent by the air force and Rs 1,661 crore by the navy, according to Laxman Behera, research fellow at the Institute for Defence Studies and Analysis (IDSA).

The defence budget for 2013-14 rose barely 5.3% to Rs 2,03,672 crore, compared with the 17.6% expansion in the previous budget. Behera terms this growth as negative in view of rising fuel prices and inflation.

“You cannot cut salary, LPG consumption to feed personnel and certain other operations in defence activities. Hence, decision-makers prefer to control spend on energy first, when they have to reduce revenue expenditure. However, cutting down energy consumption hits your defence preparedness as soldiers are less mobile and not very well-trained, especially in case of air force and navy, where one must gain experience of a certain numbers hours of flying and sailing every year,” Behera of IDSA has said.

Confidence Collapsed

India’s economic confidence collapsed sharply due to continuous depreciation of rupee, hitting an all-time low and high current account deficit, a report by global research firm Ipsos.

According to the Ipsos survey, India’s economic confidence dropped by massive 7 points to 53% in the month of August compared to the month of July 2013, dragging its rating down to seventh most economically confident country in the world.

“Indian economy is in distress with rupee depreciating sharply against dollar. Strong demand of US currency from importers and banks, continuous capital outflows, widening current account deficit and dollar’s strength against other currencies overseas amid expectation that the Federal Reserve will soon taper its bond-buying programme has put enormous pressure on the rupee,” said Mick Gordon, CEO of Ipsos in India on record has said.

Nutshell

It is a known fact to all that India is holding Kashmir by golden chains, however, will the weakening of Indian Rupee against Dollar has the potential to break the golden chains? Only time can tell however as of now the depreciation of Indian Rupee has taken a toll on its defence budget, fuel cuts to armed forces and has shattered economic confidence of India. I think economy is potent enough to shape the political future of Kashmir in the future.