Dollar vs Rupee


Written on 6:16 PM by nitesh

Currency appreciation is an indicator of booming economy with increasing international business. Rupee has appreciated around 12-14% in the past year. This has brought new challenges and new opportunities as well.
Dollar is depreciating because of huge US govt borrowings, high current account deficits, budget deficits and low savings rate. The inflow of USD has increased in indian economy due to various ways like External commercial borrowings, FII's , FDI and all these have caused the rupee to appreciate against the dollar.

This trend is expected the continue further as more and more money is expected to be pumped in growing countries specially the BRIC ones. Other reason is countries like China may plan to shift their forex reserves from US to basket of currencies, their by dumping dollars in the market further depreciating the dollar.

It is impacting our exports in negative way and imports in positive way. Out rising import bill is curtailed, we are able to bear the challenges of rising oil prices in international market because of the appreciation of rupee and hence keep inflation under control.We can increase our spending on infrastructure and setting up industries as procurement of engineering goods from outside India will be cheaper. Companies like Ranbaxy and L&T have been able to generate forex gains in the last quarter because they have substantial exposure to ECBs.Tata's corus funding has become cheaper :) .
Good time for Indian consumers interested in buying imported goods as electronics items ,cars etc are all cheaper now. Holidays to Europe and US are cheaper now.
Indian companies are expanding a lot abroad as acquiring companies has become cheaper enabling the companies the pursue the dreams of becoming Indians multinationals.
This is a good time to pay our external debt :)

Indian exporters are facing lot of problems, gems jewelery and textile exports have become cheaper now and margins are getting squeezed. Specially in the textiles sector lot of workers have been laid off. It is right time for these companies to move up the ladder by manufacturing luxurious items that is high value goods which will bring in more returns and help them survive the new challenges. Medium and small scale sector companies in the above sectors are facing problems.

Indian service sector, which rose when the rupee depreciated in the early 90's from 25 to 45 is now facing the challenges of appreciating. Though revenues are increasing but profits are getting squeezed and growth of the overall sector is expected to be slowing down to some extent but not in a big way.
It companies are decreasing their exposure to the US market by focusing on Europe and Australia also, Satyam US revenues have come down to approx 50% level, so are other companies trying. Companies are trying to move up the value chain through consulting and making products also and decreasing the bench strength and providing more trainings etc. IT companies are acquiring companies abroad and at places which are nearer to the clients at cheaper markets.

With the US economy expected to go in recession it may bring in more outsourcing work for the service sector as it will lessen the cost of companies in US.

RBI have to make such policies which bring in lot of money in India now as all are fearing to put their money in US markets. Let the money be invested in infrastructure, mining , and other sectors.
Mindset should be changed in tackling with this problem and opportunity, search for new markets and build industrial base should be the mantra.
Need is to bring better infrastructure like roads, ports and airports which will to some extent lessen the logistics cost of indian exporters and it will also promote the exports.

Future is bright for India , japan came out of it in the 60's when one dollar was 360 yen and it appreciated to around 100 yen , we will also be able to tackle the problems.

Time to develop indian brands .... soft power

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1 Comment

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