Falling Rupee: Implications

TrueSpirit

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

The naked truth is, it is not only profiteering, but actually stealing from people's savings accounts, by lobbying the government to print more money (read counterfeit money), so as to keep inflation going, and keep the Rupee weak. The Reserve Bank of India is a willing accomplice in this counterfeiting business.
counterfeit money ? Didn't get it...?
 

TrueSpirit

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Interesting blog post.

The Great Indian Rupee Trick

1. No FDI is coming, regardless of the noise made by the #PaidMedia and the dishonest Govt.

2. The trade deficit shows no sign of decreasing as the imports exceed exports by a good USD 20 billion or so every month

3. Oil has just touched 100 and will only increase as winter sets in and demand increases. So unless, the oil companies have booked forward at a good price, we have to deal with the reality of higher oil prices.

4. Sooner rather than later, the India story will wither away, thanks to high fiscal and CAD and plain mismanagement and scams, and it will be very difficult to resurrect it. The consequence would be a flight of capital with a deleterious effect on the Rupee.
[/I][/B]
Well, the people have voted for a 'subsidised' life with Bharat Nirman and FSB and NREGA. The results are there for all to see. Where are we headed? To a hellish life made more hellish by runaway inflation, a Rupee tanking and looming food shortages as farmers find no labour to help in sowing and harvesting their crops and a whole generation bred on freebies.

We have one hope and he will come in on the back of huge expectations. But I am sanguine that he will assemble a crack team that will take unpopular decisions in the short term to ensure a long term surplus for all of us. If we have UPA3, kiss the idea of India Good Bye!
This is exactly what is happening. @Blackwater No FDI is coming.

NREGA has made agriculture an impossible vocation, not that it was a profitable one for small farmers.

If UPA-III still happens, we should conclude that India deserves this & worse.
 
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Ray

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Sir, trickle-down effect from "big-business profiting" does helps common men, in form of increased compensation, leading to increased purchase power, implying higher domestic consumption, leading to more demand & basically achieving economies of scale in the longer run.

However, the "trickle" is minor in India's case & benefits only a minor section of our society.

Further, the shoddy delivery-mechanism of leakage-prone distribution system (driven by a calamitously populist govt.) ruins the economy for good.
How does it help the common man?

Prices are rising for everything including food!
 

pmaitra

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

counterfeit money ? Didn't get it...?
Long story short - when you print more money, you must add more gold and silver into the reserves, and if that is not done, the currency inflates. The extra printed money isn't distributed to all, but only to the banks (Quantitative Easing or Fractional Reserve Banking, same thing with different cool sounding names). If you have money in the bank, well, they just lost value - theft by Reserve Bank of India, simply by counterfeiting.
 

jamesvaikom

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

The main problem is Govt. is overdependent on FIIs and FDIs to control rupee depreciation. This is only a temporary solution. Its foolish to think that foreigners will invest money and won't take profit back to their country. The root cause of all problems is our consumption and imports are increasing due to high population growth. But our Govt. and politicians are shy even to talk about family planning. Rupee depreciation will continue as long as Govt. keep on spending money for forced pregnancies.
Family Planning in India: Forced pregnancies
 

jamesvaikom

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Falling rupee hurting us? The IT giants won't agree.
IT companies will get more profit. But Govt. will impose more tax on tax payers including IT professionals to help poor people who are facing problems due to rupee depreciation and high inflation. SO only few people are benefiting from rupee depreciation.
 

pmaitra

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

IT companies will get more profit. But Govt. will impose more tax on tax payers including IT professionals to help poor people who are facing problems due to rupee depreciation and high inflation. SO only few people are benefiting from rupee depreciation.
Not just the poor people are facing problems, but also Ministry of Defense, that has to import weapons from abroad.
 

TrueSpirit

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

How does it help the common man?

Prices are rising for everything including food!
Sir, inflation in itself is not all that undesirable as long as it is accompanied by decent, perceptible, trickling-down growth. In fact, a controlled inflation could be considered as a fait accompli in growing economies.

When big businesses employing a large workforce enjoy sustainable profit (& provided it is Laissez-faire environment, not a kleptocracy like ours), a fraction of the operating margin/dividend/profit/bonus is passed on to its employee. In an extremely competitive job-market like India, its a given because enterprises need to retain a competitive edge through workforce-retention.

So, the inflation is often accompanied by increase in individual's purchasing capacity & overall, domestic consumption.

What India faces today is stagflation (stagnation + inflation) & there are no easy ways out of it. Monetary stimulus tends to exacerbate an already volatile situation, which gives shivers institutional investors. So, policy measures alone are not the solution but structural reforms are need of the hour.

Now, it's not like leaders do not know what exactly to do. They have ample reports (with explicit recommendations) at their disposal, from the numerous committees commissioned so far, to fast-track reforms. They simply need to act upon it.

But, those measures are be a bitter pill, somewhat unpopular for large section of electorate. Hence the diffidence, procrastination or dilly-dallying in implementing them. Belling the cat has always been tricky, notwithstanding the advantages of doing so.
 

TrueSpirit

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Long story short - when you print more money, you must add more gold and silver into the reserves, and if that is not done, the currency inflates. The extra printed money isn't distributed to all, but only to the banks (Quantitative Easing or Fractional Reserve Banking, same thing with different cool sounding names). If you have money in the bank, well, they just lost value - theft by Reserve Bank of India, simply by counterfeiting.
Oh yeah, I got what you imply. I understand the process but counterfeit currency has a different connotation, isn't it.
 

TrueSpirit

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

IT companies will get more profit. But Govt. will impose more tax on tax payers including IT professionals to help poor people who are facing problems due to rupee depreciation and high inflation. SO only few people are benefiting from rupee depreciation.
Already, the tax-holidays being enjoyed by large IT companies governed by SEZ norms are mostly over. A Shylock-esque Govt. is already eyeing to extract the last pound of flesh from the last surviving industry that continues to be profitable. One sees IT notice to the tunes of 500 crore & above, slapped on these companies every now & then (once just because one of them ie. Narayan Murthy, made a positive comment in favour of Modi).
 

Tolaha

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Long story short - when you print more money, you must add more gold and silver into the reserves, and if that is not done, the currency inflates. The extra printed money isn't distributed to all, but only to the banks (Quantitative Easing or Fractional Reserve Banking, same thing with different cool sounding names). If you have money in the bank, well, they just lost value - theft by Reserve Bank of India, simply by counterfeiting.
Backing currency with gold (Gold standard) is something that every country has stopped practicing a long time back you know. Counterfeiting is just not the right word to be used here!
 

parijataka

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Indian voter made a big mistake by bringing in Congress in 2004 and then again in 2009. They are going to leave a poisoned cup for whoever comes in 2014 or for themselves. See their hurry to pass Food Security Bill thro ordinance (Lokpal Bill forgotten) without discussion in Parliament.
 

t_co

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Actually, most developing nations in the late 19th century (Germany, Japan, the US, Argentina) experienced some sort current account deficit; there, capital flowed from the UK and France and was used to build up profitable infrastructure, factories, mines, farms, etc. Each of those countries, with the exception of Argentina, turned out well.

Unfortunately, most of India's account deficit is caused by energy, consumer goods, and defense imports - none of which really generate a positive ROI.
 

Tianshan

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Actually, most developing nations in the late 19th century (Germany, Japan, the US, Argentina) experienced some sort current account deficit; there, capital flowed from the UK and France and was used to build up profitable infrastructure, factories, mines, farms, etc. Each of those countries, with the exception of Argentina, turned out well.

Unfortunately, most of India's account deficit is caused by energy, consumer goods, and defense imports - none of which really generate a positive ROI.
basically, a short-term trade deficit is not necessarily a bad thing.

as long as you are just using it to buy yourself time to build up your industries, with the eventual goal of gaining either a trade surplus or a smaller trade deficit.
 

no smoking

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

basically, a short-term trade deficit is not necessarily a bad thing.

as long as you are just using it to buy yourself time to build up your industries, with the eventual goal of gaining either a trade surplus or a smaller trade deficit.
The problem with india is that they didn't grab that opportunity!
When everything went well, they just waste those FDI and export profit on the energy subsidies, military purchase and luxury goods or that stupid 2 billions castle. Those sectors such as infrusturctures, machinery, on the other hand, didn't get enough investment. Now when market gets cold, they didn't get prepared when their pocket is empty.
 

Known_Unknown

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

The problem with india is that they didn't grab that opportunity!
When everything went well, they just waste those FDI and export profit on the energy subsidies, military purchase and luxury goods or that stupid 2 billions castle. Those sectors such as infrusturctures, machinery, on the other hand, didn't get enough investment. Now when market gets cold, they didn't get prepared when their pocket is empty.
The problem is that the government (especially Congress) mismanages its money. They spend all the extra cash during times of plenty on entitlement and welfare schemes rather than using it as loans/grants/tax subsidies for new industries. Its funny that India under the socialist Congress has gotten itself into a ditch while communist China isnt facing such problems.

Guess which country has the world's largest guaranteed employment scheme or the largest food subsidy program? You would think it would be communist China, but no, its actually India....where politicians love to buy votes with other people's money!
 

pmaitra

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Oh yeah, I got what you imply. I understand the process but counterfeit currency has a different connotation, isn't it.
When I use counterfeit, I mean fake, and counterfeit money is money that simply doesn't exist, and this is true in case of Fractional Reserve Banking.
 

Armand2REP

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Long story short - when you print more money, you must add more gold and silver into the reserves, and if that is not done, the currency inflates. The extra printed money isn't distributed to all, but only to the banks (Quantitative Easing or Fractional Reserve Banking, same thing with different cool sounding names). If you have money in the bank, well, they just lost value - theft by Reserve Bank of India, simply by counterfeiting.
Since when is the rupee on the Gold Standard?
 

jamesvaikom

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Re: Falling rupee isn't just pinching us, it's hurting all of us badly

Already, the tax-holidays being enjoyed by large IT companies governed by SEZ norms are mostly over. A Shylock-esque Govt. is already eyeing to extract the last pound of flesh from the last surviving industry that continues to be profitable. One sees IT notice to the tunes of 500 crore & above, slapped on these companies every now & then (once just because one of them ie. Narayan Murthy, made a positive comment in favour of Modi).
That will happen. Companies which make profit will face more tax burden. Companies which make loss will face more problems. In long term companies and citizens will prosper only if nation prosper.
 

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