QE tapering in emerging markets: Inflation jumps in India

The Indian rupee has suffered the most from the Fed's QE tapering talks. The country's high current account deficit (over 4 percent of the country's GDP) and lower import cover are what made the Indian economy so vulnerable to the QE tapering scare, according to Bank of America Merrill Lynch.

In the last few months alone, the rupee has dipped 12 percent against the greenback, hitting its lowest point in independent India's 67-year history. Inflation is almost at 10 percent, which is among the highest in Asia. Growth for 2012-2013 slowed to a record low of 5 percent, down from the average 7.7 percent in 2002-2011. On top of all this, government borrowing is running at about 7 percent of the GDP. Combine all these factors together and it is easy to see why investors are running from the Indian market like cockroaches in sunlight.

To soften the blows, the Indian government has taken steps to keep the economy from falling into crisis mode. States have promised single-window clearances for investments and help with acquiring land at below market prices. Rules on foreign direct investments, which have plunged 21 percent to $36.9 billion, have been eased for multi-brand chains like Wal-Mart. Requirements have been scrapped requiring that retailers only operate in cities with more than a million people. Procedures have been streamlined for investing in “attractive” sectors such as telecom. Import duties on gold have been raised to 8 percent from 4 and deposit rates have been increased as well. These measures are aimed at helping curtail the outflow of investment money and hopefully convince investors to ride out the storm with them.