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What do you understand by real effective exchange rate (REER)? Some economists say that the
rupee is overvalued. What do understand by this and why, in their opinion, is rupee
overvalued? Examine.
REER indicates the weighted average of a country's currency relative to an index or basket of other major
currencies adjusted for inflation.
A country whose REER Index is close to 100 is considered to be fair valued. When REER goes above 100
levels it’s believed to enter over-valued zone and vice versa.The RBI calculates REER for India
CURRENCY OVERVALUATION is condition that occurs when the supply of a currency is disrupted by overdemand resulting in an increase in its value beyond the accepted market exchange rate.
+VES
1) Downward pressure on inflation i.e. imported goods will be cheaper
2) More imports can be bought
3) High value of currency forces domestic producers to improve their efficiency to be more
competitive in the international market.
-VES
1) Overvalued currency will make exports uncompetitive in the international market which will hurt
the export industries
2) Imports are relatively cheaper to buy due to overvalued currency. Consumers will go in for more
imports which will damage to domestic industries, INCREASED CAD.
WHY RUPEE OVERVALUED
1) India imports higher than exports.
2) India's trade and current-account deficits are still high, short-term external debt continues to rise
and there is unhealthy dependence on non-resident Indian (NRI) remittances and foreign
institutional investors' (or FIIs') portfolio investments..
3) partly due to flawed statistical methods.
4) weak manufacturing base,power & mining sector dismal performance , paltry slow economic
reforms, no clarity on policies like insurance,fdi.(policy paralysis)
5) uncertain fate of policies, telecom policy gives new licenses, sc cancels down licenses, coal mines
licenses cancelled,.
6) taxes tangle- vodafone & nokia the are fighting the it cases.
7) Never ending lust for gold...big issue.
Examine how the Russian economy has grown post the break up of erstwhile USSR. Also
examine causes behind its recent economic crisis.
After the breakup of the USSR, which followed a centrally planned economy, Russia moved to a globally
integrated market economy. However, the then president Yeltsin’s program of radical, market oriented
reforms was disastrous for the Russian economy as the real GDP fell by 40%. Botched privatization
procedures, high corruption and concentration of wealth and, capital flight were the major reasons
responsible for this situation, finally resulting in the financial crisis of 1998.
Russia’s economy recovered surprisingly quickly after the crisis on the back of growing energy exports,
devaluation of the ruble (making Russian producers competitive internationally), rise in disposable income
of the people and of the commodity prices and, introduction of pro-growth economic reforms including a
comprehensive tax reform.
Russia’s present economic crisis has been due to its over-dependence on energy exports which currently
occupies 70% of its export basket. The relative stagnation of the EU, which is Russia’s largest trading
partner and the falling oil prices have been the major reason for the lessening export incomes. Sanctions
imposed on Russia after its annexation of Crimea has also hurt its economy.
The recent devaluation of the Ruble by 6.5% by Russia’s central bank is seen as a move to stop any
further slide of its currency. Also, Russia is searching for new trade partners and attempting to diversify its
exports sector. The $400 billion agreement for sale of natural gas to China, the defence deal with Pakistan
and the recent agreement between Russia and India for sale of 12 nuclear reactor units to India are cases
in point.
In your opinion, what are the solutions needed to overcome so called 'policy paralysis' in
India? Discuss.
Policy paralysis followed by implementation paralysis has done enough damage to India in every aspect
How to overcome ‘policy paralysis’
1) More ‘Empherical approach’ over ‘behavioral approach’: Empherical approach is more practical and
uses analysed data from previous policies to frame a new policy whereas behavioral approach is
more theoretical and the policy is designed based on mere commonsense with out much initial
practical testing of the policy leading to undesirable and unexpected results.
2) Involving more academicians and subject experts in policy making rather than depending merely
on civil servants.
3) A policy gets its final approval from respective ministry so not having amatures as ministers
becomes important to cut policy paralysis
4) Sheilding policy making from populist measures and vested interests groups will help create citizen
centric policies.
5) Studying successful and innovative policies of foreign nations while policy making and tweaking
them to suit Indian context will help create better policy
6) Decentralizing policy making by involving states and other stakeholders will help create more
acceptable and practically efficient policies
7) Excluding policies merely based on Idealism and historical perspective have proved to be incorrect
and the policy makers should take enough liberty to accommodate various ideas that would suit
the present context. (Soon after Independence, policy makers completely avoided involving foreign
capital due to idealist and historical consderations. But this approach was proved wrong by rapid
progress made by India post liberalization)
‘Developed County’ status remains a distant dream unless Policy Paralysis is not replaced with Effective
Policy Making
Critically analyse how the debate on the nature of secularism and its practice by the state has
evolved vis-a-vis nationalism and communalism since independence in India.
Imperfect and Incomlete answer written by me. I just didn’t have enough time and patience.
In colonial times Congressmen identified secularism with nationalism, which was in turn held to be the real
antonym of communalism. This notion is no more accepted as each of the above words have been given
new definitions and meanings by various political and fundamentalist groups.
In Indian context, ‘seculariam’ has become a myth with every political entity using the word for political
gains but not really following its principles. Every Political Party in India has given its own definition and
meaning to the word ‘secularism’, applying populist and majoritarian logic. One of the peculiarities of
Indian political debate is that everyone claims to be secular while accusing others of not being so. The
state in turn has its own notion based on Constitutional and Judicial interpretations.
New notions have evolved giving news dimensions to ‘secularism’. Pseudo-secularism is one such concept
used to describe the policies that involve minority appeasement. The term "pseudo-secular" implies that
those who claim to be secular are actually not so, but are anti-Hindu or pro-minority.
Contemporary India’s secular credentials are only constitutional but not demographic. Pluralism which was
no bar to its secular credentials in colonial times, is now by every means a dividing factor which is
manipulated by vested interest group to meet their political ends.