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RE:Raising rupee good for India
by Sai Akkanapragada on Jul 27, 2007 09:09 AM | Hide message |
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Currency exchange rate depends on the following,
1. Investment flow - FDI and speculative - Capital account
2. Current account - exports and imports.
The reason why India is getting lot of foreign investment both FDI and speculative is because MNCs are expecting a good return for all the USD they invest in India. When will this happen? When the consumers both retail and corporate have good disposable incomes and purchasing power. Does this require Indian rupee to be weak because most of the jobs created in the last 5 years were due to outsourcing which led to a huge Indian middle class with lot of disposable income. This leads us to believe that Indian rupee has to be weak but due to capital inflows
Indian rupee is becoming stronger in the short term. This may lead to lower revenues for exporters in IT, ITES but costs are also lowered as
price of oil,imported manufactured goods etc will be cheaper. Will this lead to the death of Indian mfg, if the immediate impact is only to revenue and not cost.Yes.
2. We also need to analyze what percentage of India's GDP is exports.
If we don't export value added products, our exports will be directly impacted by currency fluctuation.We end up earning less for the precious resources we export if the Rupee appreciates.If the way India is going to earn money is going to be through labor, example IT and diamond cutting, it is in India's interest to prevent the rupee from appreciating. One way to do it is to artificially peg the curren |
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