The effect of external on internal.

"The Indian economy seems to be in the midst of a strong growth rebound," wrote an editorial in the Mint last month. "Production of passenger cars, commercial vehicles, consumer durables, steel, cement, -- which are good proxies for overall economic activity -- show strong momentum." The concerns were a higher inflation, rising interest rates and private sector investment. Figures have changed this month. Wholesale Price Index has fallen to 5.09% in July from 5.77% in June, while retail inflation fell to 4.17% in June, the lowest in 9 months. This is good news because the pressure on the Reserve Bank to tighten monetary policy to keep retail inflation to its target level of 4%, set by the government in 2016, is reduced. Trouble is that the trade deficit "soared to a near five-year high of $18 billion". This is partly due to a rise in the price of crude and partly due to a 7-month high in gold import in July. The rupee has fallen to 70 against the US dollar. Higher prices of imports will reduce consumption, which is good, but a higher price of oil will add to transport costs of everything. The rupee has fallen 2000% since independence, wrote SC Agarwal. While the fall in early years can be ignored because there was hardly any infrastructure the fall after 2007 is perplexing. The rupee was trading at around 39 to the dollar but had fallen to 48.5 by 31 December 2018. This was at a time when the subprime crisis was unraveling in the US, Lehman Brothers collapsed in September 2008, and the Federal Reserve cut its Funds Rate to 0%. Since the crisis was in the US and its interest rate was at 0% one would expect the dollar to be weaker, instead the rupee fell, and has not stopped since. "Rupee is depreciating due to external factors. There is nothing at this stage to worry," said Economic Affairs Secretary SC Garg. The Reserve Bank has been selling dollars to soften the fall so that our foreign exchange reserves have fallen by over $23 billion since a record high in April. By reducing imports and increasing exports a weaker rupee should be a good thing, wrote R Kishore, but it means that India loses the beneficial effects of cheaper crude oil. The government said that we have nothing to worry because it is due to external factors, implying that there are no problems with the domestic economy, but the Indian government has no control over external factors, so what if these factors become worse? The Finance Minister is unable reduce enormous taxes on fuel because fiscal deficit will go out of control. The problem is that politicians think they can engineer the economy, wrote Prof S Rajagopalan. "While our prime minister has often disavowed socialism and criticizes the Congress' socialism on an almost daily basis, he is the most ambitious planner of them all." External plus internal, we have both.