A National Calamity: Options Before Government

The unprecedented floods in Kerala last month resulted in the death of 373. Around 1.2 million people from their homes and hearths were uprooted. They are now in relief camps.

- T. K. Jayaraman

There are estimates of collateral damage: ₹ 20,000 crore or $2.86 billion. The state government has requested aid for ₹ 2,000 crore or $2.86 million. The central government has sanctioned, as reports say, around ₹ 600 crore, which is 30% of what Kerala wanted. The central government has not indicated reasons for the small proportion. Maybe they are waiting for some detailed assessment of the needs. Certainly, austerity is not the reason at this hour of human misery.

Economic problems

The central government has its own economic problems.

They did not stem from nature’s fury. They are man- made: poor governance in public sector banks (PSBs) now for more than three decades or so; the latest infusion of capital in the PSBs which are “in the intensive care”, at the expense of tax payers; rise in crude oil price; low growth in exports; mounting trade deficits; pressure of widening current account deficits on the rupee; excessive reliance on the fickle minded hot money inflows (invested in equity and debt of short-term nature, of less than a year duration) from overseas, which are withdrawn at any time. The last mentioned short term inflows in good times, especially over the last two years or so, helped the country in building up a record level in international foreign reserves, as they reached $426 billion in April. Recent outflows of hot money have resulted in the fall in the value of the rupee.

The only country which accumulated high reserves through a straightforward way was China. All by exports!

Added to these troubles, the latest Turkish lira crisis in the first half of August brought down the values of currencies of emerging economies. On August 16, the Indian rupee reached for the first time the lowest ever at ₹ 70.2 per dollar.