MUMBAI: Eisuke Sakakibara, a former Japanese minister of finance and economist, known as 'Mr Yen' because of his ability to move currency markets during the '90s, advises the Indian government to take advantage of the falling rupee by boosting exports and not to fret about it. The currency depreciation is a worldwide phenomenon caused by "simultaneous recession" in global economy, he tells TOI on a visit after becoming a board member at investment bank Avendus Capital.
You are here in the midst of what some people call an Indian currency crisis. What are your views on rupee's steepest fall ever in recent months?
What is happening right now is repatriation. Funds are now returning from emerging economies to US because of simultaneous recession worldwide. There's a flow from equities to bonds. It's a worldwide phenomenon triggered by the euro crisis. India is running a current account deficit and capital inflows supported the currency so far. So as long as capital continues to flow out, this depreciation will continue. How long...is uncertain. If I were the Indian government, I would tell the Indian people, 'Don't worry because it is to do with repatriation and not because of any weakness in the Indian economy' and try to take advantage of the situation by increasing exports.
Do you think the euro will survive as a single currency? How do you see the future of the Eurozone?
Germany and France forged European integration in the post-War era. But it's beginning to disintegrate because of the Greek crisis and the
US crisis. I think the problem is structure. The Greek crisis has been temporarily suspended but it's spreading to Spain and perhaps Italy. So the integration is at risk and this is a structural problem and I don't see any immediate way out of the European crisis. The crisis will continue and eventually hit European banks. Because bonds of south European countries are plummeting, the balance sheet of banks are deteriorating. I think it is a possibility that some French, German or Italian banks may have a problem and the fiscal crisis may eventually become a financial crisis. I would not be surprised if a major financial institution in Europe goes bankrupt.
A lot has been said about Japan's debt that's running at about 200% of its GDP...
It's true that debt is high but Japan is not in a financial crisis. While the debt is 180% of the GDP, the accumulated assets of the Japanese households is almost 240% of the GDP, which more than covers up the debt. And most of that debt is owned by Japanese
institutions unlike in the
case of US, where more than 70% of its debts are in the hands of foreigners.
There's rising interest of Japanese corporates in India. How do you see the Indo-Japanese deal corridor shaping up?
Yen has been strong and I see it that way for a while, giving the Japanese companies enough comfort to pursue international acquisitions. They have gone into China in a big way, but are now talking about China Plus One strategy. That's bringing lot of focus on the Indian market where they see better longer-term growth. India's younger population will sustain longer growth, possibly even 20 or 30 years after China peaks off. Japanese conglomerates, aided by low cost of capital, normally look at the long horizon.
Short term devaluation of rupee will not help. Unless it is the government policy to keep the currency at this level it is too risky to get into export contracts. It is predicted that by August everything should come back to normal. Lets see
Generally, devaluation could benefit you in half year. beyond that date, the increase cost of your importation would offset your benefit in exportation. This devaluation of indian currency is not gov policy. It is simply the market response to india accumulated trading deficit. So, unless india can increase its exportation significantly or bring the foreign money inflow to a higher level, the things will become worse.
My sense is, has possibly seen the lows it had to, at least for now, and should start to appreciate from now on.
More policy measures are on the way, and Kaushik Basu is again looking a little upbeat, and he is again making reference to certain key reforms, provided the political will on part of the coalition is there, the key word again remains, coalition.
Wait for the change to set in from the second half of the fiscal (Oct onwards, that is what he is hinting at).
If indeed it is so, 50 to a dollar should be more like it that we should sustain in times to come, provided manufacturing is given the much needed push.
There is one thing which is doing good, the exports. The growth is hovering around 20% or so, and again they are expecting a similar growth, so this hasn't been a disappointing area. More important is our manufacturing needs to be well taken care of, exports will do well.
MMS taking over the reins of the Finanace Ministry and has made all the right noises to sooth the nerves.
The result is there for all to see BSE Sensex is nearly 400 points up , 1US$= 55.95
The sheer cussedness of Pranab Da and the lack of faith in him was a big drag on the Indian economy. due to global scenario, Crude and Gold prices are tumbling down and this bodes well for India, as these two account for a large chunk of our import bill. This will also reduce the pressure on
MMS has nothing to loose. The Indian economy needs a roadmap to work on and not impediments like the former finance minister and the earlier Environment Minister, Jairam Ramesh.
Hope you will make up for it in profit on your shipments.
If the government and the RBI clearly outline how the arrangement of oil importers getting minimum 50% of foreign currency from SBI or other banks will function, it will take some demand off the forex market. Some announcements of foreign investment coming in (Walmart and Coco Cola) have also helped.
A diesel price hike will help some more though it will also pinch pockets.
Overall, the net exporters of the world are awash with dollars and as they slowly begin buying tangibles in the net importers, the value of the dollar has to fall. Also arrangements between trading nations to use their own currencies, bypassing the dollar, should help reduce demand for the dollar.
Yes, it will help your manufacturing in certain period. But please keep that in mind: india is a country with huge trade deficit! That means your importation will be punched heavily due to the increase of cost! Certainly, after a certain period, this cost growth will pass to your manufacturing!