While the economy is far from out of the woods, the swift hurtling towards a train wreck seems to have halted for the time being. With the news that the IMF will issue a letter of intent, the revival of the IMF’s ESAF is now inching closer towards certainty, allowing a bridge between the staff-level agreement, which has been achieve, and the approval by the IMF’s Board of Directors, which is expected to approve, but later on/ This was reflected in Friday’s gain of Rs 3.39 to the dollar, after it went to Rs 215.49 to from Rs 218.88, where it closed on Thursday. One optimistic prediction had been of the rupee reaching Rs 200 to the dollar if there was an IMF agreement. By that evaluation, the rupee is undervalued.
An unrelated development, but one which also means good news for the government, is that international oil prices seem to have reached their limit, and are beginning to come down. That also means that falling dollar rates are combining with falling oil prices to enable the government to pass on the benefit to the consumer by reducing fuel prices. As much as the government took tough decisions by increasing the price of fuel, so as to meet IMF conditionalities, it should now not hesitate in providing the common man some relief. It is no coincidence that the opportunity to provide relief has come with the IMF demanding the imposition of another Rs 30 billion in taxes. The government must tread the fine line between doing the IMF’s bidding and providing relief to the common man.
