Lot of people do not understand the devastating effect of rupee depreciation on common man.
In mathematics they call it boundary condition analysis. Similar approach can be used to find the appropriate value of Rupee.
For a theoretical case : Lets Assume 1$ = Rs. 1000
Now practically all your goods would be exported to outside world. Export would be so profitable, common man wont get any products (whether it is grains or gadgets).
1 Liter petrol would be Rs. 1000 1 gram gold would be Rs. 16,000
Oil would be so expensive, that even oil reserve we have in India would get exported.
What effectively happened is, we are giving all our minerals and work force of every Indian man to the betterment of people in USA (or other countries). What do we get for that?? USA will print their own currency and give it to you.
In bottom line, It is plain old Slavery.
In boundary condition analysis. Lets look at the other side.
Lets assume $1 = Rs. 1
Now every thing in world will get imported. 1 Liter petrol will be less than Rs. 1. 1 gram gold would be Rs. 20. You can buy a good computer for Rs. 150. You can have a round trip for USA for less than Rs.1000.
You can buy a nice private jet for Rs. 50 lakhs.
But You can not export any thing now.
*Unless* the product you export is really really needed by the importing country.
USA is importing like mad. They run huge deficit. And they have been running huge deficit for years. Why do they do that??
Now exporters need to improve their efficiency to stay alive.
Inefficient exporters do not want to improve their efficiency. Currency depreciation is easy money for them.
What is the bottom line ?!
The country should not rely just on exporting simple products like textiles, and minerals from your country. Software is a good example of quality export. It can with stand further rupee appreciation. Because importers do not have cheaper, quality alternatives.
Unemployment in the country should dictate what the exchange rate should be.
Currently unemployment rate in Indian big cities (like Chennai) is like 1.5% This is unheard thing in Indian history.
When there are lot of unemployed people, as a country you won't mind them working for foreigners. (not directly, but in producing simple things/services for exports.)
But with current low unemployment rate rupee appreciation is in nation's interest.
RE:Thought Experiment
by SHAM SUNDER on Oct 05, 2007 11:15 PM Permalink
Excellent Analysis ...But your Quality IT Export is not going to stay in India ... All these IT Jobs, BPO and low employment ration 1.5% or whatever ? ...will be taken back All MNC opened centers in india ..because of the Currency Difference ....they save in that... after will become 1 rupee ...They might move to NEPAL or BURMA .....Indians does not innovate anything ..they just support what USA produce os anyone can do ..after..traning and experience............In chennai ... IT will go and then most of the exporters whoever is exporting ..will go ...so u will have UNEMPLOYMENT ration 98% and u won't have rupee 1 to afford tht Patrol ??
Why CHINA is not improving their currency ? becuase they are smart ..they are buying the EXPORT ...with cash reserve ..rather then ..loosing it
Lot of uneducated mexican immigrants are moving to USA in big numbers. Mexican immigrants comprise 15% of USA population. Importance given to science is clearly on decreasing trend in USA.
On the other hand importance given to Science and scientific thinking is on increasing trend in India.
Nature's rules are same to every one. There is absolutely no reason in nature that what one man can do in one nation can't be done by another man in another nation.
It is an old notion only USA can innovate. Nature had always been harsh on nations and people who deviate from science.
RE:RE:Thought Experiment
by ASHOK on Oct 05, 2007 08:50 PM Permalink
Senthil >> Thanks for the easy to understand explanation. I enjoyed it more than the main article.
RE:RE:Thought Experiment
by Baba Pratap on Oct 05, 2007 08:27 PM Permalink
This is what exactly gonna happen, If the Rupee Appreciates, People will resort to Import things rather than Manufacturing in India, coz that's easy and cheaper.
So who will be affected again ?
The poor, the Blue collar jobs will be taken away.
India's Import / trade deficit will mount up like anything.
unemployment should give us hint on policy decision. Current low unemployment rate is a historical low.
As Greenspan used to say to US senators, "you lose some export related manufacturing jobs, but you must be gaining some where else. How else could you explain low unemployment number."
