Sterilizing RBI’s neo-Mercantilist forex controls draw skepticism

NEW DELHI, August 18, 2013 (AFP) – Indian policymakers are looking increasingly panicky as they battle the worst currency crisis in more than two decades, and more worryingly there is no sign their remedies are working. There have been no signs so far of domestic capital flight but analysts say the controls may have been tightened to avert one in the face of India’s troubles.

The economy expanded last year at a decade-low of five percent and indicators this year have been grim with economists warning about “stagflation” — a combination of high inflation and low growth.

With an election to be held by May 2014 and pro-market reforms divisive, there is no way the Congress government can undertake root-and-branch reforms needed to put the economy back on track, economists say.

“There is a complete lack of faith in the markets” about India’s outlook, said Param Sarma, chief executive at consultancy firm NSP Forex.

“We are slowly, but surely, likely to enter a phase of a crisis,” he said. The rupee lurched to a new lifetime low of 62.03 to the dollar on Friday while the benchmark share index posted its biggest one-day fall since September 2011.

“None of the policymakers’ Band-Aid measures (from capi