In my last blog post I was talking about things rising in India like prices, inflation etc. Then I thought what about things falling in India? Ta-da… THE RUPEE! The quote in the heading as beautifully stated by Mario Miranda certainly amuses, but the fact which really concerns me is the current exchange rate of my beloved currency Rupee against the mighty Dollar! It now takes almost 54 of these pretty ladies dancing to impress 1 prince charming! A few months ago the number was only 48 and is expected to touch 56 soon! All these exclamatory remarks seem quite intimidating and worrisome but actually for some reasons these are a blessing in disguise.
Let’s talk about exports. What happens to the exports of a country (say India) when its currency (Rupee) depreciates? Yes they increase, because it becomes relatively cheaper for foreigners (say Americans) to purchase, as they need to pay less of their own currency (Dollar). It is also evident from the fact that recently India recorded its highest ever exports of more than 300 billion dollars in a global economy which is still droopy! Falling of the rupee has brought big smiles on our country’s IT giants like TCS, Cognizant and Infosys, which are contributing superbly through the IT and software exports. The benefits have even percolated to the employees of these organizations. For example, Infosys increased its top management personnel’s salaries by about 50% than the previous year.
Other than this, I was quite surprised when I came to know that India has become a significant exporter of petrol and diesel to countries like Iran and Saudi Arabia. So basically we import crude oil and export petrol and diesel. I think that’s pretty neat for a country like India.
Another reason to not worry about weakening of rupee against dollar is the state of our current foreign exchange reserves. We have enough moolah to even see an exchange rate of 60! Then of course a weak rupee means Indians abroad will send more money home for better investment/Return options thereby further increasing the foreign exchange deposits.
However, all this is a temporary phase. Like we are aware of how the phenomena of arbitrage works, initially after giving some super normal profits, the markets which were unequal, will come back to normal or in equilibrium (where both markets are same). Similarly this rupee weakness after certain point will turn in the other direction and everything else will automatically fall into place. The government is also taking steps to bump up the rupee. Reserve Bank of India is trying to curtail the volatility of rupee by tackling intraday trading positions and also encouraging (read that forcing) the exporters to sell half of the foreign currency in their accounts, which will help release dollars into the market!
Rashmi S Gairola