DisFact #1: Rupee depreciation and the rise in fuel prices

Happy Saturday, folks! Welcome to the first issue of DisFact, my weekly newsletter about Indian politics, policy and economy.


The decline of rupee and the rise in fuel prices, explained

What: Rise in crude oil prices and an emerging-market selloff has rattled the Indian economy. Rupee is depreciating against the dollar. Petrol and diesel prices have touched a record high. Opposition parties blamed the Modi government for mismanagement of the economy and called for a ‘Bharat band’ on Monday.

How bad is it? The rupee dropped to an all-time low of 72.69 against the dollar this week. It ended at 71.85 on Friday. The 12% slide in value this year makes rupee the worst performing currency in Asia. Among other emerging markets, only Argentina, Brazil, Russia, Turkey and South Africa have performed worse.

(Chart from Mint)

Why is this happening?

While rising crude oil prices were already having an impact on the rupee, a free fall of the Turkish lira following an economic crisis in that country impacted emerging economy currencies, which lost ground against the dollar. Concerns over US-China trade talks, too, have had an impact on emerging market currencies over the last couple of months. (Indian Express)

Why it matters

  1. A decline in rupee make it tougher for Indian companies to raise funds abroad.

  2. India was already suffering from higher oil prices this year. And when rupee falls, imports become expensive (exports cheaper), meaning oil costs even more money.

  3. Rising crude oil prices, coupled with a falling rupee, pose a risk to inflation.

  4. It also leads to increase in the current account deficit (CAD). “We run into a deficit if the value of the goods and services we import exceeds the value of those we export”. CAD rose to 2.4 per cent in the June quarter—a cause of worry for the economy.

  5. More: Why a falling rupee should worry us (Mint)

Impact of costly oil: India imports 80% of its energy needs, which makes vulnerable to fluctuation in oil prices.

  1. That raises prices of essential items—not a good news for the government in an election year.

  2. “Bank of America Merrill Lynch estimates that every $10 increase in oil prices hurts Indian consumption by 0.6% of gross domestic product.” (WSJ)

  3. It may also prompt the RBI to raise interest rates—to attract more foreign investment—which could hit consumer demand.

But..petrol and diesel prices are not just based on global crude price: It has got a lot to do with taxes. It is a key component of how states raise funds . Here is a detailed explanation of taxes you pay (Factly)

What is the government doing? On Friday, the government announced a set of five measures to support the rupee and to ensure that the current account deficit stays in control.

Go deep:


The disturbing state of postmortem investigations in India

A two-month investigation by Mint has revealed that the vast majority of this staggering number of autopsies that are performed every year are of little value, and in fact, often have the exact opposite effect of what it is supposed to: riddled with errors, or done incompetently, they lead to justice being denied.

Autopsy? “A post-mortem examination to discover the cause of death or the extent of disease.”

Key issues: Autopsies are being done by untrained doctors—even sweepers; “The MBBS graduates and non-forensic specialists entrusted with doing post-mortems in India are never made to do an autopsy during their training.”; Unnecessary cases add to the already bloated volume of cases.

This is a disturbing story, full of gut-wrenching anecdotes. Long read. Worthy of your time.


Aadhaar enrolment software compromised by a patch

A HuffPost India investigation revealed that an “inexpensive, freely available, software patch” exploits vulnerabilities in Aadhaar's enrolment software, “letting unauthorised persons, based anywhere in the world, alter information stored in the database and enrol new users at will.”

What is a patch? “A patch is a bundle of code used to alter the functionality of a software programme.”

How it works

Once the patch is installed, enrolment operators no longer need to provide their fingerprint to use the enrolment software, the GPS is disabled, and the sensitivity of the iris scanner is reduced. This means that a single operator can log into multiple machines at the same time, reducing the cost per enrolment, and increasing their profits.


Why it matters

The software patch is unusual in that it doesn't seek to access information stored in the Aadhaar database, but rather looks to introduce information into it.

This, experts said, creates a whole new set of problems and could defeat many of Aadhaar's purported aims, such as reducing corruption, tracking black money, eliminating fraud and identity theft. It also means that the Aadhaar database is vulnerable to the same problems of ghost entries as any other government database.

From NewsLaundry

This comes after an investigation by Tribune in January this year which revealed that it is possible to access the Aadhaar database using a hacked software being sold by anonymous people over WhatsApp for a measly sum of Rs 500.

Read the full HuffPo story here.

What the authorities said: In a series of tweets, UIDAI dismissed the story “as completely incorrect and irresponsible”. But they did not responded directly to any of the specific claims by the report.

(HuffPost India followed up with another story, responding to UIDAI's comments in greater detail)

Note: Numerous concerns have been raised about security of the Aadhaar project. Sometimes, the threat is exaggerated. But reports like these highlight critical systemic issues. The dismissive attitude of UIDAI towards civil society doesn’t help.


More

  1. The Real Cost of the 2008 Financial Crisis (New Yorker)

    It’s September 15, “the tenth anniversary of the demise of the investment bank Lehman Brothers, which presaged the biggest financial crisis and deepest economic recession since the nineteen-thirties”

    The aftermath produced a lost decade for European economies and helped lead to the rise of anti-establishment political movements here and abroad.

  2. How WhatsApp Destroyed A Village (BuzzFeed)

    In July, residents of a rural Indian town saw rumors of child kidnappers on WhatsApp. Then they beat five strangers to death.

  3. Opinion | Why politicians should apologize when they mess up (Mint)

    Admitting a mistake is seen as an act that will bring down a leader from his or her pedestal

  4. The BJP’s 2019 plan is banking on Modi’s leadership, welfare and a divided Opposition (Hindustan Times Editorial)

    The BJP is banking on two factors here. For one, it believes that Modi has no match in the opposition ranks, and this will probably be the single most important election card. Two, it thinks that juxtaposing the possibility of a stable government with the sight of a chaotic Opposition, and fragmented political parties, will steer the voter towards the incumbent again.


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