An impossible trinity plus a triple whammy, do they make six?

The exchange value of the rupee should be allowed to fall in tandem with other currencies, according to the Chief Economic Adviser, A Subramanian. "If oil prices rise and other currencies depreciate, the rupee depreciating has to be part of the adjusting mechanism. To say that the rupee should not depreciate when all these shocks are happening is just bad economics." The rupee has depreciated 8% against the dollar this year already. He can talk freely now because he has resigned his post to play with his soon-to-be-born grandchild in the US. All emerging market currencies are under pressure and moving in the same direction, wrote D Scutt. Countries with large gaps in external funding will do worse than others but if one currency falls steeply there is risk of contagion. "The recent US Fed fund rate hikes have been accompanied by increased issuance of US treasury bonds to fund the widening budget deficit. This has resulted in US dollar tightening in the market and increased outflows of US dollars from the emerging economies. According to the Institute of International Finance, foreign investors pulled out $12.3 billion from emerging markets in May, the largest monthly outflow in the last 18 months," wrote R Sinha. Foreign investors have sold over $4 billion of Indian stocks and bonds this year. Oil prices are rising, there is tightening of dollar liquidity and the current account deficit, CAD, "after an estimated tripling to about $50 billion in the last fiscal", "is estimated to widen further in the current fiscal". "As the CAD widens further and FII inflows dwindle, India's balance of payments (BoP) could slip to deficit. With high forex reserves of more than $400 billion, a deficit BoP situation should not be a big cause of concern. Gradual weakening of the rupee will in fact support India's exports." Unfortunately, exporters are not seeing any benefits from a weaker rupee because buyers are asking for a reduction in prices. Blaming external factors is easy. Indians are buying increasing amount of electronic goods, which have to be paid for in foreign currencies. With general elections due next year the government has decided to increase the Minimum Support Price on several agricultural goods. This will add to the fiscal deficit and increase retail inflation as MSP will increase prices of food by setting a lower limit on prices. India is prone to high rates of inflation probably because of its humongous population. Who does inflation help? It helps the government by reducing its debt and increasing tax collections as prices and wages go up. But it also loses elections, as the Congress discovered in 2014. The Finance Minister faces an impossible trinity in increasing prices of farm goods, controlling fiscal deficit and keeping a low retail inflation and a triple whammy in a high cost of dollar, high import bill and higher cost of capital. Just before the election.