In his recent Mann Ki Baat radio broadcast, Prime Minister Narendra Modi said he was troubled by the trend of some “big families” conducting weddings abroad, and urged people to hold such celebrations on Indian soil so that the country’s money does not leave its shores. “The wedding season as well has commenced now. Some trade organisations estimate that there could be a business of around Rs. 5 lakh crore during this wedding season. While shopping for weddings, all of you should give importance to products made in India only,” the Prime Minister said.
The Prime Minister is absolutely right in his observation. However, the question is: how long will the government remain a silent spectator to such wasteful spending of foreign currency purchased in exchange of domestic currency, Rupee? In a way, it is a matter of shame for the entire nation about the way the country’s rich are splurging money abroad for fun wasting hard-earned foreign exchange by India’s poor farmers, small-scale exporters and migrant workers labouring abroad. Only a few years ago, Bollywood actors Deepika Padukone and Ranveer Singh got married at a resort overlooking Lake Como in Northern Italy. Last year, the South China Morning Post reported why Vietnam’s PhuQuoc is the billionaire’s choice for a big fat Indian wedding overseas.
Maybe, it is time to curb foreign spending for fun and entertainment by wealthy Indians to partly protect the value of Rupee which has been witnessing a free fall ever since the government decided to drastically relax the foreign travel spending rules. Until the mid-1980s, Indian tourists visiting abroad was allowed a maximum US$500 each when the exchange value of one US$ was only around eight rupees. Thousands of India’s Haj pilgrims were given $300 each to spend in Saudi Arabia during their month-long Haj travel. They used State-owned Moghul Line vessels to sail out of the Bombay port to Jeddah. Those days, even high earning Bollywood film icons happily held their marriage ceremonies at home.
Thanks to the reckless foreign spending and growing import of luxury goods, including household decors, the value of Indian currency has been moving downward since the beginning of this century. The Rupee is losing value almost every week or every month. In May 2004, the price of one US$ was worth Rs.45.32. It went up to Rs.62.33 when the present government was installed in 2014. Between May 2014 and now, the exchange value of Rupee vis-à-vis US$ has dropped by 21 notches to Rs. 83.32. Reckless splurging of foreign funds by Indians in exchange of Rupee is not the only reason for the continuing loss of the value of Indian currency, there are several other reasons. And, all of them can be reasonably controlled by the government. Unfortunately, this is not happening. The government has been lacking initiative to protect the value of Rupee.
According to the Reserve Bank of India (RBI, Indians spent $1,137 million on travel in December 2022 alone. This takes the total spend on cross-border holidays between April and December 2022 to $9,947 million, or nearly $10 billion. This may sound rather astounding for a country where 800 million poor people are given free food grains by the government every year. Similar is the case of massive gold imports by rich Indians year after year. The demand and prices of gold have been continuously surging as the rich are losing faith in the value of India’s paper currency. In 2022-23, Indians imported gold worth $35 billion. The value of silver import was $5.29 billion. This was at a time when the country witnessed a trade deficit of $267 billion. The rising annual trade deficits are weakening the value of the Indian currency.
The forex earnings of India’s toiling farmers and migrant workers are footing the bill of the country’s foreign spending by the rich. In 2022-23, India’s farm exports touched an all-time high of $53.2 billion .And, Indians working abroad sent record remittances, last year. According to the World Bank’s latest Migration and Development Brief, India registered a growth of more than 24 percent to reach a record-high $111 billion in remittances in 2022. However, the World Bank predicted that India may post a growth of just 0.2 percent in remittance inflows in 2023. As of July 2022, 1.3 million people from India emigrated to work. The United Arab Emirates, the United States, and Saudi Arabia hosted the highest number of Indian workers during the measured time period.
The factors contributing to the constant downtrend of the Rupee are many. The wasteful expenditure of foreign exchange by the Indian rich is only one of them. The others include inflation, interest rate disconnected with inflation, deficit balance of international trade and payments, high foreign debt, fiscal deficits and government borrowing. Inflation, interest rates and foreign exchange rates are correlated. Each of these factors can affect the other. While low inflation and high interest rate may attract foreign funds to a country, strengthening its exchange rate, the high inflation and controlled interest rate can bring down the value of the local currency. Countries with large public debt can witness the fall in the exchange rates of their currencies because they are viewed as risky investment destinations.
Experts view the current account deficit – the difference between a country’s expenditure and earning – as one of the most critical deficit parameters. It means the country is spending more to buy than what it earns. The country’s export earnings are not enough to pay for its growing imports. It needs to borrow money from abroad to make up the difference. The high demand for foreign currency lowers the domestic currency’s exchange rate. A large public debt, domestic or foreign, is a recipe for high inflation. The country’s currency gets weaker. The government and the Reserve Bank together must take a strong resolution to protect the value of Rupee even if that makes the authorities unpopular among the country’s small number of rich people. (IPA Service)
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