Falling Rupee: Implications

Discussion in 'Economy & Infrastructure' started by Yusuf, May 17, 2012.

  1. Yusuf

    Yusuf GUARDIAN Administrator

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    Someone with better knowledge please help me understand better but I think the rupee sliding as it has been is going to create more problems in the long run.

    One one hand the rupee is falling dramatically which is good for the export, but high inflation takes away from the PPP advantage that we have in dollar terms. Whatever the price of rupee, we will get adjusted to it. If the rupee rises and the inflation remains high, it will make us totally uncompetitive internationally and erode the PPP advantage that we have.

    On the other hand, if the rupee stays undervalued, import costs will be high which means our oil import bills will remain high and keep cost of transportation high which will add to inflation.

    It's a bloody vicious cycle.

    What I have understood is that the falling rupee has not helped India in any way as far as exports go as we have hardly seen a boom in export. On the other hand, we have seen our oil import bill go through the roof an just today I have heard that a Rs. 5 hike on petrol and Rs. 3 on diesel is in the offing. This will increase the cost of food as transport cost will increase.

    Problem is, RBI seems to be helpless in pulling back the currency and we may be doomed with an undervalued currency for a very long time. If the 55 mark is breached, we may see the rupee go all the way to 58.

    We are looking at some tough times in the economy. sadly nobody seems to have a clue as to what to do about it.
     
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  3. Ray

    Ray The Chairman Defence Professionals Moderator

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    Pranab Mukherjee may take greater interest in the Finance Ministry now that PA Sangma's name has been proposed for President?

    I think I will switch to tinned food since the fluctuation would not be that much in prices since they MRP has been what it was when packed.

    I will add to the malnourished statistics, but I would have beaten inflation and poor policy making and implementation!

    Petrol prices going up?

    Not for me to worry.

    I will return to the regimen of practising to walk long distance that I was earlier used to!
     
    Last edited: May 17, 2012
  4. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    I think you meant exports in the above line.

    Impact of transportation cost on inflation is overblown in the media. It usually consists of less than 5% in food products and less than 10% in non-food items. There are other serious bottlenecks in the economy responsible for inflation other than oil.

    The prices are sticky and orders are usually placed well in advance. So, the impact of current competitiveness if it stays would reflect after minimum 3-4 quarters. Although we will gain in exports in some time, but the huge size of our oil import bill, will more or less flatten the gain.

    Govt. is sitting on important reforms and that has killed the investor sentiment and lead to an undervalued currency. The recent rulings against telecom operators by Supreme Court and govt. stance against Vodafone-Hutch deal have also sunk confidence. It not RBI, but the govt. that should send out some important messages:

    1. Remove subsidy on petrol and deisel as it will lead to control of fiscal deficit.
    2. Move forward with GST asap
    3. FDI should be opened
    4. Sell off AI
    5. Send out strong message that past commitments will not be breached(like in case of Vodafone)
     
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  5. sukhoi30mki

    sukhoi30mki Regular Member

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    Devaluation of currency helps Export and not Import.
     
  6. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    How about adding- 1. Remove the bureaucratic headaches in the investments
    2. Stop the useless non productive subsidies in general.
    3. Raise the Railway fares to make it feasible to run them. and stop all the Populist schemes..
    4. Instead invest that money in infrastructure?
     
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  7. Daredevil

    Daredevil On Vacation! Administrator

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    It should be exports not imports.

    As long as our exports are larger than imports i.e. a better trade imbalance in favour of India, falling rupee is a blessing but alas that is not the case. We are importing more than we are exporting and therefore falling rupee is going to pinch our economy badly leading to higher crude oil import bill and increase in fuel prices which in turn raise the transportation costs and this will lead to inflation. And we are pushed in to a vicious cycle from which its very difficult to extricate ourselves unless we turn ourselves around and export more or get more FDI into our growing economy for better infrastructure, roads and education. If we fail in doing any of this, our economy will falter and it will take some time to pickup.
     
  8. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    Yeah, we need a second generation of reforms. We have taken the growth for granted for the last few years and the results are in front of us.

    Recent speech from Raghuram Rajam at one of the debates:
    Link:ICRIER
     
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  9. KS

    KS Bye bye DFI Veteran Member

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    Pay more for my tuition fee.
     
  10. addiction

    addiction Regular Member

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    This is really sorry state of our economy especially when the country is being led by one of renowned economists with proven track record…I guess, congress must go, they have become so selfish to remain on the power that they are giving in to almost every pressure tactic of it’s allies…I must say, this governments lacks the go getter attitude and playing a dirty politics at the cost of our economic growth and national security…..
    We need amendment in our constitution; if any political party supports other party to form the government, then it must be statutorily obligatory for it to keep its support until the next electoral cycle..
    Secondly, lets make the constitutional consolidation of political parties, there should not be more than two parties, it will help us to do away with the mess that coalition system has been creating…
    But, I don’t think anything like this is going to happen in our country….We Indians need change in our mindset…
     
  11. Tianshan

    Tianshan Regular Member

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    i thought recently there was a move by the indian government to shore up the value of the rupee?

    by telling the exporters to convert half their foreign earnings into rupees?
     
  12. trackwhack

    trackwhack Tihar Jail Banned

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    Unless trade parity is reached nothing will change. FDI buffer is not helping because trade deficit is growing at 3 times the rate of fdi growth.
     
  13. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Rupee slide even today is largely happening because of the eroding investor confidence in the stock market, and the trigger has been the Eurozone crisis and of course, the mess that has been created within by the government.

    Its been too rhetorical on highlighting the short comings on part of the government that it is pointless to even highlight them yet again, and as such the government continues to sleep and remain in denial, so what’s the point really? The government is more concerned about completing 5 years and respecting the coalition dharma, as our good member Sukhish suggests, so let us have no hopes till 2014 at least.

    Other than that, I remain of the view, we need to keep the rupee at 50 to dollar in the long run rather than letting it appreciate in the 40s or further. We need rupee at 50 for at least another two decades but then also need to push manufacturing at a very brisk pace, it is how the much desired industrialization will happen and “Made in India” make a significant mark globally.

    Sir,

    Keep checking the weight of the packed food. They keep the price same but keep reducing the weight. And even in packed products the date of manufacturing, and the price gets altered at various points, even old stuff gets sold as new if the shelf life expiry has happened. There is no guarantee out there, the best of the names in business do it.
     
  14. badguy2000

    badguy2000 Respected Member Senior Member

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    a long-term devalue of one currency just show one case....that is :

    your economy can not provide enough export to other coutries and foreigners' demand of your currency is less than your demand of foreigners' goods.

    That also shows that your economy has less competitiveness than other.

    BTW, here my advice:

    be strict with FII and attract ore FDI...

    too much FII in stock market can not help India much,instead, it usually means too many speculators like soros have arrived in India.
     
    Last edited: May 18, 2012
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  15. Yusuf

    Yusuf GUARDIAN Administrator

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    TR, without having a sound manufacturing based export like China, there is absolutely no use to have a heavily devalued currency. India has had a heavily devalued currency for 20 years but it still does not reflect well on the exports of the country. On the other hand, if we had not devalued so much, we could not have bled so much for our oil imports.

    I know there is more to it than just this simple logic. But still, logic says since we are not an export economy, we should have a stronger currency.
     
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  16. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    A deflation of Indian Rupee could indicate:
    • Indian people’s purchase power will shrink
    • India’s nominal GDP will grow slowly
    • India’s inflation could be worse
    • Indian manufactured product will be cheaper
    • India could attract more investment and tourist
     
  17. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Absolutely agree, the government has to be very focused on manufacturing, else devaluation serves no purpose.


    More than FDI, the focus needs to be on efficiency and productivity, and it in that direction that the Indian reforms need to be directed. Not everything needs to be FDI oriented, if we have created certain world beaters, there remain many more to come. Indian private sector has its own aura and potential.

    If one is to take a pick between FII and FDI, yes FDI is the preferred route though FIIs have their own role to play who help in valuation of the company which in turn helps in funding of private businesses and not to forget that there is a lot of insider trading that happens where the concerned company owners tend to make a lot of money and reinvest the same in green field projects or expansions or takeovers overseas, lets not forget this year the out bound FDI stands at 72b usd, and some funds do get generated like this, other than that in India it is very important that the retail investor is made a part of the game and potential there remains huge.
     
  18. badguy2000

    badguy2000 Respected Member Senior Member

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    I agree,except the last one,if you mean FDI.

    Just as I refered, FII can not help India much. Only FDI can bring meaning jobs to India.

    however, FDI needs the support of good infrastructure ,low cost literated labour and efficent Bureaucy.

    many countries like Vietnam have better the above 3 factors than India.....

    And inland CHina also has much better infrastructures , much more efficent bureaucy and much more skilled literate labout,,although labour cost in inland CHina is much more than India.
    And remember that CHina has a much more complete and full industry chains than anywhere in the world..and it is quite important to industry activity.

    in a word, in a race to attract FDI, the revials of India are not only countries like Vietnam,but also a huge one called "inland CHina"...

    the city where I live is just one of hundreds of cities in inland CHina.

    Do you have confidence that india can win a competition against such hundreds of CHinese cities?
    http://defenceforumindia.com/forum/general-multimedia/35828-city-i-live.html

    BTW, this weekend, I will go to the industry zone of this city,and I will post some pictures there .

    Then, you can feel what the rival of India such a race is like .
     
    Last edited: May 18, 2012
  19. SajeevJino

    SajeevJino Long walk Elite Member

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    A HUGE DIFFERENCE TO THE INDIAN ECONOMY BY FOLLOWING FEW SIMPLE RULES SET FOR YOURSELF



    Please spare a couple of minutes here for the sake of India... ?Here's a small example:- Before 12 months 1 US $ = IND Rs 39 After 12 months, now 1 $ = IND Rs 53.619 Do you think US Economy is booming? No, but Indian Economy is Going Down. Our economy is in your hands... ?

    A cold drink that costs only 70 / 80 paisa toproduce, is sold for Rs.9 and a major chunk of profits from these are sent abroad. This is a serious drain on INDIAN economy. ?What you can do about it?

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    LIST OF PRODUCTS COLD DRINKS:- DRINK LEMON JUICE, FRESH FRUITJUICES, CHILLED LASSI (SWEET OR SOUR), BUTTER MILK, COCONUT WATER, JAL JEERA, ENERJEE,and MASALA MILK...

    INSTEAD OF COCA COLA, PEPSI, LIMCA, MIRINDA,

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    SHAVING CREAM:

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    Food Items:- Eat Tandoori chicken, Vada Pav, Idli, Dosa, Puri, Uppuma

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    A&W Every INDIAN product you buy makes a bigdifference. It saves INDIA. Let us take a firm decision today. BUY INDIAN TO BE INDIAN...


    [​IMG]
     
  20. Yusuf

    Yusuf GUARDIAN Administrator

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    Are you a relative of Morarji Desai? Just asking.
     
  21. Galaxy

    Galaxy Elite Member Elite Member

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    Government inability and inaction combined with slowing growth and a widening Current Account deficit has prompted S&P to downgrade India’s rating. At the same time the rating for countries like Indonesia and Philippines has been upgraded. Today, we are one of the least preferred emerging market for investors.


    In addition, Due to high interest rate, low PAT, High Input cost --> Corporate result are in extremely bad phase. In FY11-13, Almost 30% earnings were lost! Our country is at cross roads today in policy administration and governance.

    The sad part is despite commodity correction in last few months, inflation is still high because of the nearly 15% depreciation of the rupee over the last few months.

    Therefore, Current Account Deficit is the key --> for that, We need FIIS's inflows --> for that, Investor friendly environment, good governance, better growth, normal interest rate --> If that happens then more inflows, Currency valuation will improve and inflation will decrease!!
     
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