Falling Rupee: Implications

[tramp]

With much more arable lands and better weather, Indian should really think hard why they are spending a much higher percentage of their GDP to import foods than what Chinese are spending.

Subsistence farming can hardly boast of much productivity. There is a major tech gap in most parts of the country.

Then again, Indians have failed to address the major issue of wastage of agri produce which is close to 40%.

 

[maomao]

Because around 75% of food costs is really implied energy costs, and energy costs are skyrocketing for India due to a falling currency and massive oil/nat gas imports.

How??

Did CCP tell you that 75% of food cost in India depends on fuel cost? Do you have any clue about our Food reserves?

If you have read something about the food security bill on your commie forums then let me tell you that it is just another useless bill by corrupt con-gress to gain votes of the poor, illiterate and free-loaders!

Ever heard the Phrase - Eat less as a free man than eat full as a slave?

 

[redragon]

Because around 75% of food costs is really implied energy costs, and energy costs are skyrocketing for India due to a falling currency and massive oil/nat gas imports.

The true problem is even spending same amount of energy, the output in indian agriculture sector is a lot lower than that in China. Food safty is one of the most fundamental issues in national security. Without food safty, one country can be manupilated by others easily, a country without it is an easy target of financial weapon.

 

[redragon]

that is a not a new issue. Don't know why it can't be addressed. Any suggestions?

 

[redragon]

well if you are ok to be hungry, I can't careless

 

[indian_blues]

Capital Flight: Currencies Plunge Rapidly in Asian Economies

Indian customs officials are out in full force these days in their attempt to stop the illegal import of gold. At the airport in Kochi, in the south of the country, officials recently caught a man who had hidden two kilograms (5.5 pounds) of precious metals in his socks -- he was given away by his odd gait. Other customs officers on the border with Nepal stopped a truck with 35 kilograms of gold hidden in its bumper.

ANZEIGE
Their battle is a frustrating one. For every kilogram of gold seized, it is estimated that another makes it into the country unnoticed. Gangs pay smugglers up to 50,000 Indian rupees (around €575 or $770) to bring them gold from, for example, Dubai, a favorite source. Indians are obsessed with gold right now -- and not only because of the approaching wedding season. As the rupee has dropped dramatically in value, many Indians have turned to tangible assets. The government has increased its tax on gold imports as a way of shoring up the country's currency, but that has only caused wary investors to flee further.

The government comes up with new ideas for slowing the rupee's fall almost every day: by imposing customs duties on flat-screen TVs -- which Indians could previously bring into the country unobstructed -- for example, or by making it more difficult for company managers to export capital and invest it abroad.

None of this has helped. Since May, the rupee has lost 17 percent of its value against the dollar.

There are two primary reasons for this crash. The first is that investors have lost faith in India's economic miracle and in Indian politicians. Growth has dropped by nearly half, the country's trade balance continues to slip further into the red, stock prices are practically in free-fall and inflation is deepening the divide between rich and poor.

The second reason, though, is something over which authorities in New Delhi have little control: the coming end of the credit glut in the United States.

No More American "Hot Money"?

Much of the money the US Federal Reserve Bank released onto the market as a way of stimulating the economy eventually made its way to India or other emerging markets, where it drove up property values and stock prices.

In May, Federal Reserve chair Ben Bernanke hinted at a change of course. Since then, investors have speculated about a coming end to quantitative easing -- a strategic program the Americans adopted in an attempt to lower interest rates and push up prices in the US -- and increasingly to pull their money out of emerging markets. Currency value is now dropping in many countries that previously profited from foreign capital, like Brazil, Russia and South Africa, but hardly anywhere is the phenomenon as extreme as in India.

Until recently, the so-called BRICS countries -- Brazil, Russia, India, China and South Africa -- were seen as winners in the 2008 global financial crisis. Economists even predicted that these ascending countries would be able to "decouple" themselves economically from crisis-ridden Europe and the US. Instead, those countries are now quaking at the prospect of an end to the flow of so-called "hot money" from the US.

It is true that the leading BRICS country, China, is not directly affected by the current currency crisis, since the yuan is not freely convertible -- meaning, it cannot be immediately converted into major reserve currencies. But the country's Communist rulers are struggling with their own banking crisis and an urgently needed reorientation of Chinese industry toward more domestic consumption.

Trapped Between Two Economic Giants

As China's economy falters, its imports of raw materials from other newly industrialized countries declines as well, which means China's southeast Asian neighbors in particular are suffering on two fronts. Indonesia, Malaysia and Thailand are now not only exporting less to China, they are also forced to stand by and watch as investors flee en masse from the Indonesian rupiah, the Malaysian ringgit and the Thai baht.

Prasarn Trairatvorakul, head of Thailand's central bank, has tried in vain to calm the markets. The general economic situation is "still okay," he declared, adding that the baht was moving in line with economic fundamentals.

Indonesia's central bank governor, Agus Martowardojo, has likewise played down the seriousness of the situation, saying, "the worst times of capital outflow in June and July are already over. Pressures against the rupiah are unlikely to continue." However, financial experts have doubts about the Indonesian government's ability to combat the crisis effectively. "We do not think there is a magic bullet that can turn things around," stated a team of Barclays analysts headed by Prakriti Sofat.

A Repeat of the 1997 Crash?

All this brings up some unpleasant memories: It is precisely these so-called "tiger economies" that, following a period of artificially inflated growth, triggered the 1997 Asian financial crisis. That debacle began in Thailand, where the newly rich middle class constructed skyscrapers and mansions and purchased luxury cars, all on credit. When this bubble became apparent, hedge funds in London and New York began speculating on a baht crash.

Thailand had pegged its currency to the US dollar. To maintain the exchange rate and fend off speculators' attacks, the country introduced nearly its entire foreign currency reserves onto the market within a very short space of time. Ultimately, the country's central bank had to capitulate to the hedge funds. Thailand abandoned its peg to the dollar and the baht tumbled in value. The country's debts also increased because most loans had been in dollars. Thailand ended up practically broke.

Next, trouble hit a number of banks in Malaysia and Indonesia, where enraged mobs looted shops owned by Chinese businesspeople; Suharto's dictatorship collapsed soon after. South Korea, too, only narrowly escaped national bankruptcy thanks to a $58 billion International Monetary Fund loan.

This time around, newly industrialized countries are better armed against capital flight. Having learned a lesson from the Asian financial crisis, they have increased their foreign currency reserves and partially reformed their banking sectors. Even more importantly, their currencies are no longer pegged to the dollar.

Flimsy BRICS

But the capital flight currently taking place also illustrates how far the BRICS countries and the Asian tigers still are from overtaking Western industrialized countries -- and to what degree these countries' accomplishments are now in jeopardy. According to analysts at Morgan Stanley, the central banks of developing countries, with the exception of China, lost a total of $81 billion between just May and July through the selling of dollars to protect their currencies.

Indonesia's foreign currency reserves have shrunk by 18 percent since the beginning of the year. Until recently, the world's largest Muslim country was a favorite for foreign investors. Thanks to its boom in raw materials, the country's manufacturing was still growing by over 10 percent in April, faster than almost any other country in the world. Companies from Europe, the US and Japan have built car and electronics factories in the country because, in addition to other factors, they also have faith in Indonesia's impressively well-functioning democracy.

At the same time, nearly half of Indonesia's almost 240 million inhabitants live on less than $2 a day. The rupiah's drop has forced the country's poor to cut back on food even more, while their newly rich neighbors search feverishly for a way to protect their wealth. As a precaution, the central bank in Jakarta has forbidden the withdrawal of dollars from ATMs.

These developing countries are in a tight spot. To curtail rapid capital flight, they would need to raise interest rates considerably, but doing so would cause the country's economy to stall. Indian economist Jayati Ghosh warns that this would lead to social unrest. The governments of India and Indonesia are particularly leery of causing that sort of nightmare scenario: both of these large democracies have elections in the coming year.

Currency Crisis Hits Developing Countries in Asia and Elsewhere - SPIEGEL ONLINE

 

[SLASH]

The government can make this situation into a positive by encouraging the manufacturing sector.

The need to:

a) Remove import duties on capital goods like machineries
b) Remove import duties on raw materials
c) Conversely increase import duties on end-products

This will greatly reduce the need to imports finished goods.

 

[Ray]

Indian agriculture is capable of sustaining the country.

Fortunatrely, we have not come to the state wherein we have to lease land in Africa and elsewhere to grow foodgrains to feed our population.

Notwithstanding the fall if rupee does cause alarm, even though some feel it will boost export and bring home the bacon.

It is time Chidambaram spoke less of English and got down to face realities!

 

[Abhijeet Dey]

Rupee strengthens to below 60 level against dollar, up 41 paise
PTI | Mar 28, 2014

LINK: timesofindia.indiatimes.com/business/india-business/Rupee-strengthens-to-below-60-level-against-dollar-up-41-paise/articleshow/32851552.cms

MUMBAI: Continuing its rising streak, the rupee on Friday strengthened to below 60 level at 59.90 for the first time since July 2013 against dollar in late afternoon trade on sustained foreign fund flows.

Dealers said sustained selling of the American currency by banks and exporters and ongoing bull-run on the domestic equity markets also buoyed the rupee sentiments.

The Indian currency resumed higher at 60.18 per dollar as against the last closing level of 60.31 at the Interbank Foreign Exchange (Forex) Market and firmed up further to break the crucial 60 level to trade at 59.90 in late afternoon trade, a level last seen in July 2013.

Meanwhile, the benchmark BSE sensex gathered 125.60 points, or 0.57 per cent to close at a new lifetime high of 22,339.97 after climbing to an all-time intra-day high of 22,363.97.

 

[Compersion]

Imports become cheaper also India can buy more. Also everyone knows who is the largest importer of arms.

Further it is shocking to know that India has such a vast and developed market on consumer goods and products. India needs to invest overseas and build corporations and markets overseas because there is too much potential and ability. if they can survive in india they can survive anywhere. Also overseas countries, people and market appreciate India and know they are not in for a r&d embezzlement also cheap knockoff effect but for long-term relationship and treating the people and market in kind.

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when rupee strengthens would like to see and also hear more and more indian(s) and indian corporations going overseas. that would stable the rupee and also provide a more robust india economy.