Don't struggle against quicksand.

With inflation in double digits, fiscal and current account deficits out of control there is nothing the RBI can do to support the plunging rupee which is trading at 55.50 to the dollar. A falling rupee increases the price of imports, especially oil, and adds to inflation preventing the reduction of interest rates. So, why is the RBI unable to sell dollars to bring the exchange rate down? Taimur Baig and Kaushhik Das, economists at Deutsche Bank, say that of the $286 billion in foreign reserves with the RBI, $2.8 billion are held by the IMF, $4.4 billion are held as Special Drawing Rights at the IMF and $25.6 billion is in gold. ET, 4 July. Of the remaining $253 billion $14.2 billion have to be deducted for derivative bets by the RBI leaving $239 billion as " usable reserves " which is equivalent to just 6 months imports. Which explains why our previous Finance Minister, who has been kicked upstairs to be candidate for President, devised the General Anti-Avoidance Rules in the budget. This measure was mainly designed to target Vodafone which bought Hutch-Essar for $11.2 billion through a shell company in Cayman Islands and thus avoided a withholding tax of $2.6 billion. Actually it is the seller who should pay tax on accrued gains but the government, unable to trust tax officers who may just forget for a hefty bribe, has made it mandatory for the buyer to withhold tax and submit it to the tax office. Vodafone filed for relief and won at the Supreme Court. After all $2.6 billion is a hell of a lot of money. To override the Supreme Court the Congress devised this law, known appropriately as GAAR, which seeks to reexamine every deal going back 60 years. So, to hide corruption among civil servants the politicians bring in a bad law and then to plug a loophole in that law it brings an even worse law. Naturally foreign investment has dried up as foreign companies have taken fright and the flow of dollars has dried up hitting the rupee. With general elections in 2014 the Congress desperately needs money to finance all the social schemes it started but without increasing the deficit. To that end it has decided to levy taxes on every kind of service that it can find. From 1 July a service tax of 3% is being levied on booking package tours abroad through travel agents. Already airlines are heavily taxed and airport charges at New Delhi airport have been increased by 346% on outgoing, incoming and transiting passengers making it the most expensive airport in the world. Now Indians are being asked to pay another 3% on expenses which they will incur in a foreign country and which are being taxed there. The idea maybe to prevent people from going abroad so as to save foreign exchange and force them to spend in India. The result is that airlines, already incurring huge losses, will probably go bankrupt. The economy is in quicksand and the Congress is thrashing around for a giveaway budget next year to win in 2014. Disaster looms.