Samudraniel Dasgupta : It is very interesting that you bring up exchagne rate history before 1991. I dont know how many of you remember that time. At that time, RBI was involved in appreciating the Rupee to keep India's dollar denominated debt load managable. There was constant talk about India defaulting on its loans. Today it is just the opposite, the RBI is undervaluing the rupee. We have to ask why? When the country is stagnant, our currency depreciates and when we grow our country appreciates. This is becasue, when we grow, foreigners want to invest here, which increases the demand for rupees cause it to appreciate. It is the opposite when we are stagnant. But what exactly does the appreciating rupee mean. It means that the purchasing power of Indians is increasing. When India is growing, the productivity of the average Indian is growing. This means that an average Indian's work gives him more purchasing power in the global marketplace. This is what is reflected in the appreciating rupee! American computers, Boeing jets, crude oil etc. etc. are all cheaper. Our purchasing power is increasing, Indians are rewarded. But this will happen only when the rupee appreciates. When the RBI intervenes and undervalues the rupee, it is undervaluing the average Indian's global purchasing power. Whose side is the RBI on?
RE:Indian's purchasing power is increasing
by prashant baldev on Jul 26, 2007 02:26 AM Permalink
Man, it is simple. It is the pace at which the rupEe is rising AND the capacity of the Indian economy to absorb such an increase. An increase of 10% in 6 months!!! Dude, take it easy! Food is good for health but you need to eat it a portion day by day and not overeat. A gradual rise in the value of the rupee will be beneficial. You don't want the Indian economy to go bust, right? Already the software companies who were really instrumental in the rupee appreciation are feeling the heat. I think we need to understand this - IT IS THE PACE -- I REPEAT -- PACE -- AT WHICH THE RUPEE APPRECIATES. The RBI is controlling the pace and not the actual appreciation. It is like the police monitoring the speed at which you are driving your car and not actually controlling your car? DO YOU GET IT?
RE:Indian's purchasing power is increasing
by Natarajan Vijay on Jul 26, 2007 03:53 AM Permalink
Prashant : Nobody I know went bust after a pay raise!!! The next time your boss tells you about a 10% raise in your salary, tell him "IT IS THE PACE -- I REPEAT -- PACE -- AT WHICH MY SALARY APPRECIATES...DO YOU GET IT?"
On a serious note, RBI does need to be more transparent about exactly what the hell they are doing? What is their monetary policy? You are right Prashant in the sense that the RBI should not cause sudden distrubances in the exchange rate (If sudden changes are caused by the market itself, I dont have any problem with that). I would prefer that they announce that the rupee will free-float by a certain date and slowly allow the rupee to appreciate in this period. The aim of monetary policy should be to control inflation, not to debase your own currency!
RE:Indian's purchasing power is increasing
by Prasanna G on Jul 26, 2007 08:48 AM Permalink
Rupee apriciation is good but think about the farmer those who grow exportable commodities like coffee, tea, pepper, rubber etc....these farmers already under triet, if dolor value continue to fall these comoditiese price also falls, automatically exporters will decrease the price to make their profit level so it is not only effecting IT, exporter and it is effecting to farmars and labors too
RE:RE:Indian's purchasing power is increasing
by Girish Kakar on Jul 26, 2007 04:42 AM Permalink
its no necessarily true that an appretiating rupee is good for the eco in every sence....today india is becoming a self sufficient nation n with a growing manufaturing sector it is necessary that exports r promoted.....n secondly the stock markets of india r going to be majorly affected if the rupee keeps appretiating.....who will invest in our country if their money fetches them rs 30???....then the rbi forex reserve of doller will lose its value.....if a person says that the govt is using our tax income as a benifit to the exporters by undervaluing the rupee then i will argure with the fact that c this as an investment by the govt rather than a loss coz dol will rise in the long run....crude prices r rising,resulting in reduced demand for crude n complimenting reduced demand for dol.....but as crude will fall,dol wil increase in value.....if dol falls in value,exports,tourism,it,etc will lose again complimenting wit a loss in employment...agreed that inflation will fall but at this stage moderate inflation is imp for our eco coz that helps in da growth of the eco.....agreed it is a good sign tht rupee is gaining value bt it should increase gradually nt like 10% in 6 months....n if rbi discloses its actions then ppl can take undue advantage of da same n the rbi loses.....US eco has come bck 2 a stable level after a panic situation of high inflation n in mid term its expected to press the paddle.....so dols will gain value in the future bt it should all be gradual not drastic
RE:Indian's purchasing power is increasing
by munish sharma on Jul 26, 2007 02:10 AM Permalink
I completely agree Vijay. One thing that I find hard to understand is why economists think that exchange rate works to the overall advantage of country's exports. IMO only thing this advantage creates is lower productivity. Exporters are happy because they can make lot of money due to depreciating rupee and buyers want it because this stuff is cheap due to currency conversions. But in the long run there is no incentive for exporting companies to do any R&D to be competitive. Overall economy loses on R&D front and in long run falls back on competitiveness. As a result these exporters keep pressing the govt to keep the value of rupee low so they do not have to work hard. They are selling their stuff because it is cheap, not because it is high quality sought after stuff. Appreciating rupee will create a need for these companies to be competitive in global market and produce things that are high on quality and create a name for India in high quality products.
RE:RE:Indian's purchasing power is increasing
by Natarajan Vijay on Jul 26, 2007 03:56 AM Permalink
Munish, Economists do not recommend that you debase your currency. In fact, the great economist Milton Friedman, who won the nobel prize in 1976, argued against the Gold standard system of his day and in favor of a free floating exchange rate. This is what we have for the most part now.
RE:Indian's purchasing power is increasing
by munish sharma on Jul 26, 2007 08:33 AM Permalink
THey dont really agree but there is this whole bunch cribbing about setback to exports. These people are lobbying the government and by proxy RBI to promote exporters interests. Exporters want to compete on price and not on the quality. You can imagine the result this policy will have in long run.
RE:Indian's purchasing power is increasing
by N M on Jul 26, 2007 09:31 AM Permalink
You are right in way. However, considering the overall scenario, the people affected by rising rupee are not only IT companies (as assumed by many on this forum) but low class workers working in production units across India. And since they cannot export now, they need to fire these people. A rising rupee will be good when India is able to produce items/products/services which are highly advanced so that no other country is able to provide them. Then buyers have no choice but to buy from us even though the prices are higher. US/Europe are able to have high currency value because they can produce high-tech products which countries like ours have to buy from them, irrespective of the price. India's economy still requires to develop at the low end first before we can move towards highly specialised products. And that is why rising rupee may not be so beneficial, at least for the next 5-7 years. On the other hand, a short stint of rising rupee will not hurt much, considering we use this opportunity to buy foreign products at this time.
