Rupee grows stronger, but India ?

28Jul07

The rupee rose 0.2 per cent to 40.65 against the dollar as of the 5 pm close in Mumbai, according to data compiled by media.” – Re rises, biggest Q gain in 34 years, The Economic times, 2nd July 2007.

This news hit us all. This meant we’ll have higher bills to pay when we swipe our international credit cards in India, we’ll have to send ‘more’ while sending money to India and the plight of those who have some student loans from India to pay which they had taken at the rate of Rs.44 per dollar was understandable. But these thoughts made me feel bad about ourselves. Afterall India was growing stronger, and obviously the nation’s collective interests have to come before the individual’s.

Or atleast that’s what I thought until I learnt that the rise of rupee could thwart India, giving rise to a negative feedback mechanism.

Sharp rise in rupee has begun to hurt, with exporters considering lay-offs, which could affect 2.75 lakh jobs, and the government mulling to scale down export target to last year’s level of $125 billion from the ambitious $160 billion set in April” – Rupee rise: 275,000 jobs may be chopped, Rediff money, 12th July 2007.

This happens when a country depends on foreign exchange for a considerable part of its GDP. Rise of rupee would mean, increase in the offshore expenses for many MNC’s and India’s IT job sector which is predominantly service based, offering its services to these MNC’s has to bare the brunt of it. Isn’t this is an abject situation, where the country is itself affected by the rise of its economy ?

The world has Interdependencies, but a country’s economy can go stable only when it depends more on its internally generated revenue than its foreign exchange. Service sectors are great, but in the long term it would be beneficial if the income required to meet the expenses of these sectors could be generated internally instead of depending on the foreign exchange. I obviously do not have a clear solution, but I do have a guideline. And economists! now its your time to work.

update:

A very informative and impartial outlook on this issue is here:

Is the rising rupee good or bad for India? What impact will it have on the global competitiveness of Indian firms? Should the RBI or the Finance ministry intervene? Responding to these questions and more, experts at Wharton and elsewhere say that the rupee’s rise is the result of India’s growing ability to attract global capital. While this creates problems for some companies that earn most of their revenues in dollars — including IT giants such as Wipro, Infosys and TCS — it also creates opportunities for Indian firms by making it less expensive for them to acquire overseas assets. In addition, a strong rupee is good for the Indian consumer. It would be unwise for the government to intervene to force downthe rupee’s value, they note.” – Currency Conundrum: Is the Strong Rupee Good or Bad for India?, Wharton School of Business, University of Pennsylvania.

 

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15 Responses to “Rupee grows stronger, but India ?”

  1. Oh Cuckoo won the early bird prize !

    I am so much with you on this. When abroad, we all pray for rupee to go weak where the reality should have been something else.
    I guess the solution for internally generated revenue is not an easy one.. in fact a vicious circle. We’ll have to look to other industries as well to generate money for say, IT sector.

  2. Just my 2 cents, I think that India will need to totally pull some magic regarding the infrastructure sector because it is badly lacking in it to support the fast-growing economy. The nation needs it to attract more foreign investments. India is very dependent on exports — which is bad because the strong INR isn’t doing it any favors. The govt has a lot on its plate and has even more to chew. Hopefully it chews well and knows how to handle the economy efficiently.

  3. when it comes to problem patriotism vanishes away.
    But economical data has proved that no economy can stay up for a long time.So do not worry.
    I know it feels very unattractive to think like this ,but can’t deny the fact of life.Think about those students who took loan at the rate of Rs 44 per Doller.I have real sympathy for them.

  4. @Cuckoo: generating income frm the IT sector is a really good idea. That way we can use the generated income there, to pay off the resources in the same sector. That way IT sector will become self dependant and economy will go much more stable. But i really hav no idea how cud we make the IT sector generate money sufficient for itself, esp when almost all the projects r foreign.

    @princess banter: I totally agree with u, the infrastructure no way meets the demand there by not satisfying the demand-supply strategy.“India is very dependent on exports — which is bad because the strong INR isn’t doing it any favors” u’ve pretty much summarized wat i wanted to say.

    @expression: but the analysists are saying tht rupee will continue to be strong for atleast 2-3 yrs. I really empathize with those students for they r my friends, but in the long term rupee becoming weaker again is not a stable solution frm any angle. There needs to be done something which reduces these interdependencies and alleviates this push-pull effect.

  5. 5 Alka

    Yes, the currency has to be strong. Though who earns in dollars will be adversely affected, but this is not the solution. The simple solution is they have to earn more. The profit of Infosys is affected by this appreciation. But still….

  6. @Alka: they have to earn more is indeed a simple solution, but not an easy one. iam sure the brightest minds in this field are working on it.

  7. 7 SK

    Nice links, thanks for posting them.
    I remember a dollar was 48 bucks, when I came for my Masters.

    India should not rely so much on US and other countries to build its economy. I would want it to be a good thing for rupee value to go up, for it means dollar value is going down. We have the potential to be a strong wealthy nation, cant live off of other countries always.

  8. I fully agree with the update.
    Ultimately, a strong rupee is GOOD.

  9. @SK: boy! thts a long time back. well, rupee value going up would mean dollar value going down relative to the rupee, i too hoped it’ll do good for India, but obviously tht is not the case. Guess its high time we retrospect our economic policies.

    @Cuckoo: Ultimately, yes.

  10. Oh yes, life is complicated… but at the end of the day, the surging rupee will make a lot of good sense for the home economy, maybe even goad the rest of them (like banking sectors, infrastructure, etc.) to fall in line.

  11. @Sudipta: I too hope it ‘ll have more good consequences than bad

  12. Stuff will work out. Currently our economy is expanding, we need to import technology and machines. They will cost less now. So we use better technology to produce same/better products more efficiently. As a result, our product cost reduces and event at higher exchange rate, we can export competitively.
    Only business with weak fundamentals will collapse – Call centers for example are in India purely due to cost reasons and nothing else.
    btw, on purchasing power parity basis, 1$ = Rs.6. Our currency is devalued anyway!

    PS: My RSS reader is acting funny, I was wondering why it didnt show any post for weeks!

  13. @Priyank: Product based companies r gonna get positively affected if they get affected at all. But service based secotors will be in a situation. And as we all know, India’s employement boom is basically dependent on these service based IT sectors, which r really worried. But i hope in the long term evryone’s happy.

    Last time I checked ur site, it said u were out for some time, never knew u returned 🙂

  14. Hello, can u tell me that how can i get the updated news hourly about the rupee Vs doller?
    Thank u.

  15. @milind: sorry . I donno of any particular source. But im sure there are many business sites out there where u can find what u want. btw I wish u left some pointer to ur blog.


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