Sliding Rupee: Are We Getting Too Pessimistic?

Posted in Finance Articles, Total Reads: 1503 , Published on 13 June 2012
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“We still have another 7.5 months worth of Foreign exchange in our treasuries – Pranab Mukherjee”. While traveling in one of the local trains in Mumbai, I got an opportunity to listen to a mid forty guy who was telling his friend, how bad he thinks the fall in exchange rate can hit the country. The same very moment I realized, is the whole media attention to the falling rupee adding fuel to the age old pessimistic outlook we as humans tend to have.

So in this article, I would like to present some positive aspects of the falling foreign exchange, although these need to be taken with a pinch of salt. At this juncture, I would further like to add that there is no denying that the Indian Rupee has fallen much faster than any South Asian countries currency; that the falling rupee is the major cause of a decline in the global outlook towards India, which has been downgraded faster than ever. Also, I am surely not trying to justify the falling rupee; I am just trying to point at the silver lining in the dark cloud hovering over the exchange rate.


1. We all have seen how this exchange rate fall is hurting the Indian pockets by leading to an increase in the cost of Indian imports, but are we totally oblivion of the fact that the same exchange rate is now leading to a fall in demand of imports and hence the Current Account Deficit, which we have always been worried off. Citing some figures at this point of time, I would also like to point out that the 4% current account deficit of our country has much more to do with our penchant for imports and with an imported car or a television prices sky rocketing, we finally have an opportunity to turn indigenous.

2. Another benefit is to the export sector of the country, on one hand while the imports are being sealed up, a falling rupee would also help you to improve your exports which so far have been more expensive for the European and the American customers. A falling rupee would definitely add a long queue to the bank for the majority of exporters who now boast about ‘High Quality Cheaper Indian Exports’ and why not the same Rs. 500 shirt now costs $8.9 (Rs/$= 56) as compared to $10 (Rs/$ =50).

Although at this point I would also like to point to the fact that may be the exports are not showing the signs of improvement due to the weak cues by the falling global markets but that talks about another aspect of business altogether. Secondly, according to the J-curve phenomenon of the falling currency would also suggest the same.

3. Another benefit would also be the long term consequences of pumping foreign exchange in India. As the contrarian theory would predict, a falling currency is the best bet for a company planning to enter the market. So a company who is planning to enter India would be eyeing on the major gains than it can achieve taking into account the denominator effect. And although this won’t come until we can clarify the mist regarding a failing policy making structure, but surely this offers a beautiful opportunity.

4. But the biggest advantage would possibly be the long term advantage of finally being able to break through the policy paralysis. Now, thanks to a bitter eye opener by the falling exchange rate, the Indian policy makers are finally giving a call to the long list of policies the Indian Corporate have been calling for. To mention a few, the Pension plan calling for a 25% FDI opening and privatization of the pension sector which has been under the table for the past 2 years now is finally being discussed. Although getting it cleared requires full support of the allies including the Trinamool congress which so far has been the major impediment to the pension plan citing common man at the risk.

5. The great FDI boom, with its bundle of pros and cons, is another policy that seems to have finally got a breath of hope. So talking on the nuances, we surely have some long term benefits to look forward to. Finance Minister Pranab Mukherjee recently introduced Finance Bills 2012 to give boost to the slowing economy. GAAR has been deferred for a year to provide more time to both taxpayers and the tax administration to address all issues relating to the system.

The GAAR threatens to have serious effects upon companies that have invested in India or have plans to do so. Unfortunately, GAAR Provisions have adversely affected the outlook and confidence of foreign investors in India at a time when India is actively seeking increased levels of foreign direct investment. The need of the hour for the Government is to introduce prudent structural reforms which synergies well with the efforts of RBI and gives desired impetus to an already ailing Indian Economy.

6. Another benefit up for grabs is by the expatriates working abroad, which according to one report are sending a fortune of a lifetime to India post the decline of the Indian rupee. And although we can again negate the fact that this comes at the cost of our exporters, we surely cannot deny the role these remittances make to the Indian government. India is expected to have the highest remittance behind China in 2012.

So, at the end, I assume there would be a few differences of opinion on the views of a falling rupee, I too feel that there are reasons to be worried about the decline of the foreign exchange repository we have but I guess the whole foreign exchange decline is being blown out of proportion. The other day I read, Pranab Mukherjee declaring that we still have 7.5 months of foreign exchange with us after he was fired questions of India going the 1991 pre liberalization path but as he clearly mentioned that although our deficit at 4% is just in range of 3% we had in 1991, we have a much stronger GDP and much more stronger fundamentals at place. And we are not the only country in the peers to have a fall in currency. We obviously know that the best way to control this fall is to have an inflow of Dollars and with a low cost rupee, it obviously provides and incentive.

This article has been authored by Aditya Jandial and Chhavi Sharma from SIBM Pune.

“We still have another 7.5 months worth of Foreign exchange in our treasuries – Pranab Mukherjee”
While travelling in one of the local trains in Mumbai, I got an opportunity to listen to a mid forty guy who was telling his friend, how bad he thinks the fall in exchange rate can hit the country. The same very moment I realized, is the whole media attention to the falling rupee adding fuel to the age old pessimistic outlook we as humans tend to have. So in this article, I would like to present some positive aspects of the falling foreign exchange, although these need to be taken with a pinch of salt. At this juncture, I would further like to add that there is no denying that the Indian Rupee has fallen much faster than any South Asian countries currency; that the falling rupee is the major cause of a decline in the global outlook towards India, which has been downgraded faster than ever. Also, I am surely not trying to justify the falling rupee; I am just trying to point at the silver lining in the dark cloud hovering over the exchange rate.
1. We all have seen how this exchange rate fall is hurting the Indian pockets by leading to an increase in the cost of Indian imports, but are we totally oblivion of the fact that the same exchange rate is now leading to a fall in demand of imports and hence the Current Account Deficit, which we have always been worried off. Citing some figures at this point of time, I would also like to point out that the 4% current account deficit of our country has much more to do with our penchant for imports and with an imported car or a television prices sky rocketing, we finally have an opportunity to turn indigenous.
2. Another benefit is to the export sector of the country, on one hand while the imports are being sealed up, a falling rupee would also help you to improve your exports which so far have been more expensive for the European and the American customers. A falling rupee would definitely add a long queue to the bank for the majority of exporters who now boast about ‘High Quality Cheaper Indian Exports’ and why not the same Rs. 500 shirt now costs $8.9 (Rs/$= 56) as compared to $10 (Rs/$ =50). Although at this point I would also like to point to the fact that may be the exports are not showing the signs of improvement due to the weak cues by the falling global markets but that talks about another aspect of business altogether. Secondly, according to the J-curve phenomenon of the falling currency would also suggest the same.
3. Another benefit would also be the long term consequences of pumping foreign exchange in India. As the contrarian theory would predict, a falling currency is the best bet for a company planning to enter the market. So a company who is planning to enter India would be eyeing on the major gains than it can achieve taking into account the denominator effect. And although this won’t come until we can clarify the mist regarding a failing policymaking structure, but surely this offers a beautiful opportunity.
4. But the biggest advantage would possibly be the long term advantage of finally being able to break through the policy paralysis. Now, thanks to a bitter eye opener by the falling exchange rate, the Indian policy makers are finally giving a call to the long list of policies the Indian Corporate have been calling for. To mention a few, the Pension plan calling for a 25% FDI opening and privatization of the pension sector which has been under the table for the past 2 years now is finally being discussed. Although getting it cleared requires full support of the allies including the Trinamool congress which so far has been the major impediment to the pension plan citing common man at the risk.
5. The great FDI boom, with its bundle of pros and cons, is another policy that seems to have finally got a breath of hope. So talking on the nuances, we surely have some long term benefits to look forward to. Finance Minister Pranab Mukherjee recently introduced Finance Bills 2012 to give boost to the slowing economy. GAAR has been deferred for a year to provide more time to both taxpayers and the tax administration to address all issues relating to the system. The GAAR threatens to have serious effects upon companies that have invested in India or have plans to do so. Unfortunately, GAAR Provisions have adversely affected the outlook and confidence of foreign investors in India at a time when India is actively seeking increased levels of foreign direct investment. The need of the hour for the Government is to introduce prudent structural reforms which synergies well with the efforts of RBI and gives desired impetus to an already ailing Indian Economy.
6. Another benefit up for grabs is by the expatriates working abroad, which according to one report are sending a fortune of a lifetime to India post the decline of the Indian rupee. And although we can again negate the fact that this comes at the cost of our exporters, we surely cannot deny the role these remittances make to the Indian government. India is expected to have the highest remittance behind China in 2012.
So, at the end, I assume there would be a few differences of opinion on the views of a falling rupee, I to

“We still have another 7.5 months worth of Foreign exchange in our treasuries – Pranab Mukherjee”
While travelling in one of the local trains in Mumbai, I got an opportunity to listen to a mid forty guy who was telling his friend, how bad he thinks the fall in exchange rate can hit the country. The same very moment I realized, is the whole media attention to the falling rupee adding fuel to the age old pessimistic outlook we as humans tend to have. So in this article, I would like to present some positive aspects of the falling foreign exchange, although these need to be taken with a pinch of salt. At this juncture, I would further like to add that there is no denying that the Indian Rupee has fallen much faster than any South Asian countries currency; that the falling rupee is the major cause of a decline in the global outlook towards India, which has been downgraded faster than ever. Also, I am surely not trying to justify the falling rupee; I am just trying to point at the silver lining in the dark cloud hovering over the exchange rate.
1. We all have seen how this exchange rate fall is hurting the Indian pockets by leading to an increase in the cost of Indian imports, but are we totally oblivion of the fact that the same exchange rate is now leading to a fall in demand of imports and hence the Current Account Deficit, which we have always been worried off. Citing some figures at this point of time, I would also like to point out that the 4% current account deficit of our country has much more to do with our penchant for imports and with an imported car or a television prices sky rocketing, we finally have an opportunity to turn indigenous.
2. Another benefit is to the export sector of the country, on one hand while the imports are being sealed up, a falling rupee would also help you to improve your exports which so far have been more expensive for the European and the American customers. A falling rupee would definitely add a long queue to the bank for the majority of exporters who now boast about ‘High Quality Cheaper Indian Exports’ and why not the same Rs. 500 shirt now costs $8.9 (Rs/$= 56) as compared to $10 (Rs/$ =50). Although at this point I would also like to point to the fact that may be the exports are not showing the signs of improvement due to the weak cues by the falling global markets but that talks about another aspect of business altogether. Secondly, according to the J-curve phenomenon of the falling currency would also suggest the same.
3. Another benefit would also be the long term consequences of pumping foreign exchange in India. As the contrarian theory would predict, a falling currency is the best bet for a company planning to enter the market. So a company who is planning to enter India would be eyeing on the major gains than it can achieve taking into account the denominator effect. And although this won’t come until we can clarify the mist regarding a failing policymaking structure, but surely this offers a beautiful opportunity.
4. But the biggest advantage would possibly be the long term advantage of finally being able to break through the policy paralysis. Now, thanks to a bitter eye opener by the falling exchange rate, the Indian policy makers are finally giving a call to the long list of policies the Indian Corporate have been calling for. To mention a few, the Pension plan calling for a 25% FDI opening and privatization of the pension sector which has been under the table for the past 2 years now is finally being discussed. Although getting it cleared requires full support of the allies including the Trinamool congress which so far has been the major impediment to the pension plan citing common man at the risk.
5. The great FDI boom, with its bundle of pros and cons, is another policy that seems to have finally got a breath of hope. So talking on the nuances, we surely have some long term benefits to look forward to. Finance Minister Pranab Mukherjee recently introduced Finance Bills 2012 to give boost to the slowing economy. GAAR has been deferred for a year to provide more time to both taxpayers and the tax administration to address all issues relating to the system. The GAAR threatens to have serious effects upon companies that have invested in India or have plans to do so. Unfortunately, GAAR Provisions have adversely affected the outlook and confidence of foreign investors in India at a time when India is actively seeking increased levels of foreign direct investment. The need of the hour for the Government is to introduce prudent structural reforms which synergies well with the efforts of RBI and gives desired impetus to an already ailing Indian Economy.
6. Another benefit up for grabs is by the expatriates working abroad, which according to one report are sending a fortune of a lifetime to India post the decline of the Indian rupee. And although we can again negate the fact that this comes at the cost of our exporters, we surely cannot deny the role these remittances make to the Indian government. India is expected to have the highest remittance behind China in 2012.
So, at the end, I assume there would be a few differences of opinion on the views of a falling rupee, I too feel that there are reasons to be worried about the decline of the foreign exchange repository we have but I guess the whole foreign exchange decline is being blown out of proportion. The other day I read, Pranab Mukherjee declaring that we still have 7.5 months of foreign exchange with us after he was fired questions of India going the 1991 pre liberalization path but as he clearly mentioned that although our deficit at 4% is just in range of 3% we had in 1991, we have a much stronger GDP and much more stronger fundamentals at place. And we are not the only country in the peers to have a fall in currency. We obviously know that the best way to control this fall is to have an inflow of Dollars and with a low cost rupee, it obviously provides and incentive.

o feel that there are reasons to be worried about the decline of the foreign exchange repository we have but I guess the whole foreign exchange decline is being blown out of proportion. The other day I read, Pranab Mukherjee declaring that we still have 7.5 months of foreign exchange with us after he was fired questions of India going the 1991 pre liberalization path but as he clearly mentioned that although our deficit at 4% is just in range of 3% we had in 1991, we have a much stronger GDP and much more stronger fundamentals at place. And we are not the only country in the peers to have a fall in currency. We obviously know that the best way to control this fall is to have an inflow of Dollars and with a low cost rupee, it obviously provides and incentive.


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