Rupee Appreciation was a concern few months back, now it is abt Rupee Depreciation- INDIA SHINING AND SHIVERING
If i recall you the economic times or TOI or HT of recent past , u would find editorials on Rupee appreciation, A lot many ppl , rather experts showed their concern on rupee appreciation ,we noticed exporters howling as they were getting the least possible returns..
How ? Imagine an IT company in India making a contract with US firm for 40$ a day.
Initially when the exchange rate was 1$/45INR , he was getting a smart return of around 1800 INR in a single day... Soon after the economy SPINNER , let me say DOOSRA , the prices of Foreign Currency (US$) fell against the Local Currency(INR) and the quotation said " 1$/39INR" , the average daily return became 1560 INR...
The above said paradigm was faced by several exporters who traded in dollar denomination, That didnt mean tht all Indian traders were loosing, those who were importing in dollar denomination enjoyed paying less bills... But this is recent history....Today the price of Dollar is 46.43.... means a bouncer coming directly to importers who have a hockey stick to defend instead of cricket bat. As Indian importers already face so many policies and stuff , above all they need to pay a higher price. Though it would help India to reduce imports, but still talkin in importers term ,its a concern.
I have been tracking the issue for long, and have collected the followin reasons for appreciation of $ against INR
- The main reasons behind the fall of the rupee are an increased demand for dollars due to a spurt in crude oil prices and the flight of foreign funds from the Indian market. Demand for rupees, simultaneously, has dipped because capital inflows are down.
- The American sub-prime crisis that shook the global financial markets has seen unprecedented bailouts and infusion of dollars into the US economy. This infusion has been at a cost of many an emerging market, from where funds have been pulled out to plough back into America.
- India has been one of the worst hit countries on this count, as foreign funds took flight, thereby making dollars scarce.
- The sudden and colossal demand for the US greenback has seen it strengthen, while the rupee's exchange rate has depreciated dramatically during the same period.
- India's stock market regulator, the Securities and Exchange Board of India, has said that foreign investors sold more Indian shares than they bought.
- Global funds are said to have sold Indian shares to the tune of over $9 billion more than they have bought this year. As demand for dollars from importers increased and the US
- FEDERAL BANK poured in almost $700 billion into the US economy to bail out drowning financial giants, the Indian market saw an outflow of a huge amount of dollars leading to a rise in the dollar price against the rupee.
- The growing Indian trade deficit and the large fiscal deficit are also contributing to the fall of the rupee.
- The higher price of imported goods, especially oil that is now ruling at over $103 per barrel, has also led to an increase in domestic inflation and a fall in the value of the Indian currency. High inflation and a strong growth in the Indian economy have already forced the RBI to raise interest rates.
- The demand-supply balance and the fundamentals are against the rupee
- India has seen a large amount of outflows from its financial markets.
- India is a heavy importer of oil and the current spurt in crude oil prices has impacted the rupee too.
- Also, the decline in the value of the rupee has coincided with RBI discontinuing its direct sales of dollars to oil firms in early July.
and if the SILSILAAA goes on :
- As the rupee falls, foreign investors will want bigger returns for their money to compensate for the higher risk. This means that the Indian government, companies and individuals will have to pay more for the money they borrow, higher interest rates.
- A major problem with a falling rupee is that it will increase the Indian government's burden of repaying and servicing foreign debt.
- Another problem is that it might discourage foreign institutional investment from pouring funds into the Indian markets.
- Indian companies which could borrow from the overseas markets at cheaper rates to finance their import and export needs will be badly affected.