When is the right time to panic?

R Malik compared India with Indonesia where both prime ministers, Narendra Modi and Joko Widodo were elected in 2014 and will face re-election in 2019. Both are emerging economies but India has a much bigger population and a GDP of $2.6 trillion compared to Indonesia's $1.01 trillion, so that GDP per capita in Indonesia is $3,876 while India is $1,983. The Indian economy has been growing at over 7% while growth in Indonesia has been just over 5%, but India has a much higher general government debt of 69% of GDP and fiscal deficit at 6.5% of GDP compared to Indonesia's 29.6% government debt and deficit at 2.5% of GDP. Central banks in both nations raised interest rates this year, Indonesia by 100 basis points to 5.25% to defend its currency, while the RBI raised our rate by 50 basis points to 6.5% to keep retail inflation in check. Interest rates have been dropping in the rich world since 2007, Japan and Europe went to negative rates in 2016, while rates were increasing in emerging markets from 2010 to 2016, wrote N Arora. Interest rate in India reached a high of 8% in January 2014, dropped to a low of 6% in August 2017, and has gone up since June of this year. The problem is that the price of oil has risen and the dollar has strengthened against the rupee which means that we have to pay much more for fuel in India. After selling Indian shares in the first half of the year, Foreign Institutional Investors have been buying Indian stocks in July and August. Banks are still handicapped by bad loans and the government cannot increase spending any further without pushing fiscal deficit higher, so it will be reluctant to do much till elections next year. "In the long run, exchange rate changes reflect inflation differentials," wrote VA Nageswaran. "Therefore, to fret over rupee weakness is a mistake. It is right to fret about India's rising non-oil, non-gold imports," "it reflects an uncompetitive economy for it makes more sense to import than to buy domestically produced goods or that domestic production of some goods does not happen, or it is a combination of all these." "The essence of this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises don't happen to us, here and now. We are doing things better, we are smarter, we have learnt from our past mistakes. The rules of valuation no longer apply," wrote Carmen Reinhart and Kenneth Rogoff. It is not just a correction but a run on the rupee, wrote A Barua. The RBI should sell dollar bonds to non-resident Indians to increase reserves and shore up our currency. Not so, wrote G Rangan and G Nayak. That will send the wrong signal that we are panicking. The rupee is overvalued and India needs to let the rupee down gently to boost exports and raise interest rate to keep a check on inflation, wrote SZ Chinoy. What happens elsewhere is unpredictable. That is the challenge.