With the appreciation of the Indian Rupee, its the Gulf NRI that take a beating as middle eastern currencies are pegged to the dollar. This would mean lower currency rates for the remitting NRI. Gulf NRI's overwhelmingly remit to India to safeguard their savings from work and political instability in the Middle East. Additionally, Gulf NRI's work for the short-to-medium term (5-10 years) unlike in the West where NRI's aim to take up permanent residence in their host countries. At the end of the day the Gulf NRI returns to India, therefore, requiring remittance to banks in India.
Despite what the average ignorant Indian might have to say about working in the Gulf, Gulf remittances to India provides for a large currency cushion that helps prop the government more than they or other Indians are willing to acknowledge.
Let me explains, India's current account deficit is at 3% of its GDP. Take away NRI remittances from it and the current account deficit rises to 5% of the GDP (Source: World Bank). Now do you understand the contributions NRIs (especially the Gulf variety) provide to India?
So there you go, the rising rupee will affect the Gulf Indian the most. But instead of understanding the effect of the rising rupee from this perspective (as a large proportion Gulf NRI's are from the labor class), mainstream media and Indians worry more about the hit corporations (read: Wipro, TCS, Infosys etc) will take from reduced profits as they are export oriented businesses.
RE:Gulf NRI's take a beating!
by Hatim Taj on Jun 26, 2007 01:58 PM Permalink
I agree %u2013 low-income expatriates in the Gulf have been hit hard by the appreciation of the Rupee.
For those folks who keep comparing China and India, the fact is, China is till a closed economy when it comes to transparency. Even with an appreciating Yuan, China has still managed to keep increasing her exports, while India's appreciating Re has resulted in just the opposite. The $64 question is why - why can China keep increasing her exports even while her currency, the RMB has also been apprecaiting, even if marginally? The answer is very simple - most Chinese companies are govt-owned, so govt can do anything it pleases, which it does - workers are forced to work for less, i.e., they have to work extra hours for free, in addition to salary cuts, on paper that is, so that her cost of production seems lower than it actually is, just in case they have to defend against 'dumping' charges. Meanwhile the workers receive free board and bed in govt-owned hostels, in addition to other subsidies, which never show up in the companies balance sheets. So on paper, China's cost of production is very low, but in reality it's much higher. That's how China's been increasing her exports even with a rising Yuan. How does that helps Indian exporters or an appreciating Re?
RE:Rise of the Re: What can India do?
by David Dak on Jun 21, 2007 07:23 AM Permalink
Your argument about Chinese practice is pure imagination. China's competativity is not due to the low payment for their workers but high productivity, sound infrastructure and a spirit of enterprise. Your sour grape attitute toward China is not helpful to your country and your fellow Indian.
RE:Rise of the Re: What can India do?
by Sudeep M on Jun 21, 2007 02:27 PM Permalink
I think it's also because they liberelised their market way before us. In absolute terms, I don't believe that a free market economy and free trade necessarily is the answer, but from our own failure, we're forced to believe so. Even though I agree with you, I think we need to be careful when using words like "spirit of enterprise" because might give wrong meaning that Indians does not have the "correct" attitude for development (economic:- because, I feel India is not socially and culturally poor)
RE:Rise of the Re: What can India do?
by gatzzz on Jun 21, 2007 03:31 PM Permalink
@David:
I think your understanding of Chinese industries and economy is incorrect. Ramdeo has correctly stated on how Chinese maintained their exports even though their yuan was getting strong. Further the apex Chinese bank has pegged dollar to counter the yuan getting stronger. By doing this they have maintained the yuan to stop growing at a pace i.e. slowed it down. US has been very vocal including president Bush making comments at this act. We dont need that kind of situation in India because ultimately it will be the common man suffering. Being democratic, we should think of alternative measures like quality of products and innovation to counter the growing rupee. This will increase the exports inturn benifitting our economy.
RE:Rise of the Re: What can India do?
by on Jun 23, 2007 06:35 PM Permalink
I agree with David... China's higher productivity is not only limited to the workers but is every where including staff, management, govt., judiciary, police, hospitals...the list is never ending. I feel that the reason is , no time wasted on gossip on politics( 1 party, no general elections), religion ( most do not follow any religion now). This is inspite of working 5 days a week and enjoying 2 days week end which most of we Indians are deprived of.
India has recorded its second fastest annual growth rate since gaining independence in 1947, expanding at a pace of 9.4 per cent.
The figures for the 12 months to March were revised up from the government%u2019s %u201Cadvance estimate%u201D of 9.2 per cent, issued in February, largely on account of sizeable upward adjustments to industrial growth in the first half of the year.
Even though inflation is now coming down, most economists believe that India%u2019s economy is continuing to grow well above its long-term sustainable rate. They predict further tightening of monetary policy and banking reserve ratios lies ahead.
Since January 2006 the Reserve Bank of India has raised its key overnight lending rate by 150 basis points to 7.75 per cent as part of efforts to check inflation, which eased to 5.27 per cent in the week ended May 12 after staying above 6 per cent between January and March.
India has grown faster than this only in one year since 1950-51, according to HSBC. In 1998-99, growth surged to 10.5 per cent before falling back in the early years of this decade.
In the past four years gross domestic product has grown at an average annual rate of 8.6 per cent, triggering a reappraisal of the country%u2019s potential as a force in the world economy.
The central bank has also increased banks%u2019 cash reserve requirements three times since December to slow down loan growth.
The credit reserve ratio, up 150 basis points in si
This is again a very interesting and eye opening article by M. R. Venkatesh.
It is not exaggerated to say that US Dollar will lose the unrivaled prestige that it enjoyed since post Breton Wood arrangement. It will lead US consumption dearer. In Present era, US is acting as global growth engine by consuming the production of surplus production of China and other emerging economies.
In the new envisaged scenario of US Dollar collapse, it is imperative that we, including other emerging economies promote domestic consumption to avoid another global recession. It is really a very serious challenge before entire world.
However I would be thankful if you could explain the linkage between likely antidumping cases, as pointed out in your article and the exchange rate appreciation.
RE:Otherwise face global recession !
by gatzzz on Jun 21, 2007 03:48 PM Permalink
Dumping means that exporting a product at a lower rate than what you charge in your local market. Govt's take anti-dumping measures to prevent their local companies and people working in them.
Take for example a person exporting a product and getting $100 back. 1 year back he would be getting 4500 from his exports. Now with rupee at 40 against dollar, that person will be getting 4000. But if he has to get 4500, the product should now be exported for $112.5. Because of exports getting hit due to increase in price, exporters tend to keep the existing price just like that. This results in dumping. Because if the same product is being manufactured in US and they are importing raw materials from other countries and if their cost of manufacturing has increased due to the weaking of dollar, then they would hike the prices to $112.5 (in case of above example). If our exporters continue selling that product for $100 taking their profits a hit, that would result in dumping and govt's coming into picture preventing these exports to help their companies and employees within.
Thus every exporters have to do their risk analysis because of the rupee appreciation.
RE:Otherwise face global recession !
by Surya Gagan on Jun 24, 2007 09:34 PM Permalink
No You've confused. Dumping is if you sell a product for less than what you charge in your home country.
Gatzz...your $ 100 and $112.5 example is wrong. In fact this is the whole idea behind importing somethng from abroad. That if you can't make it cheaper domestically, import it from where it is produced cheaply. This has to do with comparative advanatage and competitivness in producing something. Please see the link for furhter clarification on dumping...
If you feel the views expressed in this are worth recommendation to - the Exporters'Representatives and or the Ministry of Commerce, Ministry of Finance for their consideration for suitable implementation after devising a scheme, you have my permission to do so. You may also send this to a reputed News paper/ media for publication with a request to incorporate the financial information/statistical data wherever necessary as it has not been feasible for me to keep the information readily at hand for incorporation in my presentation I extend my sincere apologies for the errors and omissions(including some spelling errors). They must however ensure that the basic concept of the write up maintained without distorting the write up to bring me or any authority disrepute.
I am most willing to work with any authority to give concrete shape to the export incentive scheme for implementation in the service of the Country. I could be contacted on arvind40d@rediffmail.com mail or alternatively on Arvind40d@yahoomail.com
an export incentive scheme may be introduced at the earliest to compensate the exporters as under-. The scheme should cover the financial loss incurred by the exporters between April 1 to September 30, 07 (tentative month for implementation). It should compensate the exporting company to the extent of say 10% to 15% for the loss incurred by them due to the depreciation of the US Dollar. The exporting company must however increase their exports over the next 3 years at least by the same percentage of incentive extended to them. The incentive should have an added benefit of say 5% for the houses that exceed the revised export targets in the successive years. The eligibility should also be extended to those cos that have lost confirmed orders at hand for which they had procured raw materials the goods in processs(unfinished) finished goods at hand not exported as a result of the cancelled orders by the importers overseas. It should also include compensation for the differential amount between the export value that it would have fetched as against the domestic sales at depreciated value. For the exporters who have open orders should also be consideres for incentives on the above lines as also those exporters who have lost their overseas clients altogether resultant from the surgt of Rupee.
I feel only an action like this will repair the damage partially though and restore confidence in the minds of the industry to rebuild their businesses. If you feel this write up wor
RE:Continuation of transmission on export incentives by arvind damle
by gatzzz on Jun 21, 2007 03:53 PM Permalink
That is stupidity to give incentives to exporters. The onus remains on exporter to adjust his business based on currency fluctations. The exporter should re-work his business model to reduce the cost of production in order to gain benefit from this fluctuations. This is purely business and ups and downs are a part and parcel of every business. Its the reponsibilty of the owner to have Plan B for every outcome.
RE:Continuation of transmission on export incentives by arvind damle
by Surya Gagan on Jun 24, 2007 09:39 PM Permalink
I completely agree with Gatzz. In the free enterprise world why would you need such incentive. Moreover, does GoI provide any incentives to local manufacturers for loss of order or any other losses? Then why do you need it for export? The whole idea of providing business-incentives is absurd. There can't be free lunch in the world...incentives are the biggest mine of curruption in India as people do all nasty things to get this free lunch...
