Slowdown-hit Indian economy counts costs of stronger rupee

[Shahzaz ud din]

Slowdown-hit Indian economy counts costs of stronger rupee
Reuters | Published — Saturday 2 September 2017

The rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability. (Reuters)
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NEW DELHI: India’s stronger currency has become a threat for its growth aspirations, piling pressure on the central bank to aggressively intervene in the foreign exchange market even at the risk of incurring the wrath of the US.
The rupee has risen more than 6 percent this year against the dollar, snapping six consecutive years of depreciation, with the impact magnified by the decline of many competitors’ currencies against the greenback over the same period.
That is weighing on an economy that is struggling to cope with disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST), and has yet to fully recover from Prime Minister Narendra Modi’s crackdown on “black money”.
While the rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability, it is making the country’s exports less competitive and is also driving up imports, prolonging a slump in manufacturing.
An exports slowdown dented GDP growth by 2.6 percentage points in the last quarter. Overall economic expansion cooled to 5.7 percent in the June quarter, data released on Thursday showed, its slackest pace in more than three years.
“(The) rupee is now really hurting growth,” said Pronab Sen, the former Chief Statistician of India and now a country director for think-tank International Growth Center. “It is about time India does something about it, else we will have to brace ourselves for an extended spell of weak growth.”
Previously, strong rupee appreciation would prompt policymakers to talk down the currency. But that has been absent under Modi, as many of his cabinet colleagues are keen to project the rising rupee as an endorsement of the Indian leader’s economic stewardship.
But with slowing export earnings threatening jobs and double-digit imports growth hollowing out Modi’s signature ‘Make in India’ program, some officials are calling for action.
In its mid-year economic survey, the finance ministry last month cited exchange rate appreciation as one of the downside risks for Asia’s third-largest economy.
Thursday’s GDP figures have only reinforced those concerns.
“A call will have to be made sooner rather than later whether the economy can afford the rupee at these levels,” said a senior government official.

 

[faithfulguy]

Slowdown-hit Indian economy counts costs of stronger rupee
Reuters | Published — Saturday 2 September 2017

The rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability. (Reuters)
RELATED ARTICLES

• 
  India’s economic growth slows to 5.7% in the first quarter
• 
  Moody’s keeps stable outlook for Indian banking system
• 
  India’s economy seen to recover from shock cash clampdown

NEW DELHI: India’s stronger currency has become a threat for its growth aspirations, piling pressure on the central bank to aggressively intervene in the foreign exchange market even at the risk of incurring the wrath of the US.
The rupee has risen more than 6 percent this year against the dollar, snapping six consecutive years of depreciation, with the impact magnified by the decline of many competitors’ currencies against the greenback over the same period.
That is weighing on an economy that is struggling to cope with disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST), and has yet to fully recover from Prime Minister Narendra Modi’s crackdown on “black money”.
While the rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability, it is making the country’s exports less competitive and is also driving up imports, prolonging a slump in manufacturing.
An exports slowdown dented GDP growth by 2.6 percentage points in the last quarter. Overall economic expansion cooled to 5.7 percent in the June quarter, data released on Thursday showed, its slackest pace in more than three years.
“(The) rupee is now really hurting growth,” said Pronab Sen, the former Chief Statistician of India and now a country director for think-tank International Growth Center. “It is about time India does something about it, else we will have to brace ourselves for an extended spell of weak growth.”
Previously, strong rupee appreciation would prompt policymakers to talk down the currency. But that has been absent under Modi, as many of his cabinet colleagues are keen to project the rising rupee as an endorsement of the Indian leader’s economic stewardship.
But with slowing export earnings threatening jobs and double-digit imports growth hollowing out Modi’s signature ‘Make in India’ program, some officials are calling for action.
In its mid-year economic survey, the finance ministry last month cited exchange rate appreciation as one of the downside risks for Asia’s third-largest economy.
Thursday’s GDP figures have only reinforced those concerns.
“A call will have to be made sooner rather than later whether the economy can afford the rupee at these levels,” said a senior government official.

India end to improve its sanitation and health industry. That alone would generate lots of jobs. Not to mention India will create a new profession called plumbing for its lower caste people.

 

[StraightShooter]

Slowdown-hit Indian economy counts costs of stronger rupee
Reuters | Published — Saturday 2 September 2017

The rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability. (Reuters)
RELATED ARTICLES

• 
  India’s economic growth slows to 5.7% in the first quarter
• 
  Moody’s keeps stable outlook for Indian banking system
• 
  India’s economy seen to recover from shock cash clampdown

NEW DELHI: India’s stronger currency has become a threat for its growth aspirations, piling pressure on the central bank to aggressively intervene in the foreign exchange market even at the risk of incurring the wrath of the US.
The rupee has risen more than 6 percent this year against the dollar, snapping six consecutive years of depreciation, with the impact magnified by the decline of many competitors’ currencies against the greenback over the same period.
That is weighing on an economy that is struggling to cope with disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST), and has yet to fully recover from Prime Minister Narendra Modi’s crackdown on “black money”.
While the rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability, it is making the country’s exports less competitive and is also driving up imports, prolonging a slump in manufacturing.
An exports slowdown dented GDP growth by 2.6 percentage points in the last quarter. Overall economic expansion cooled to 5.7 percent in the June quarter, data released on Thursday showed, its slackest pace in more than three years.
“(The) rupee is now really hurting growth,” said Pronab Sen, the former Chief Statistician of India and now a country director for think-tank International Growth Center. “It is about time India does something about it, else we will have to brace ourselves for an extended spell of weak growth.”
Previously, strong rupee appreciation would prompt policymakers to talk down the currency. But that has been absent under Modi, as many of his cabinet colleagues are keen to project the rising rupee as an endorsement of the Indian leader’s economic stewardship.
But with slowing export earnings threatening jobs and double-digit imports growth hollowing out Modi’s signature ‘Make in India’ program, some officials are calling for action.
In its mid-year economic survey, the finance ministry last month cited exchange rate appreciation as one of the downside risks for Asia’s third-largest economy.
Thursday’s GDP figures have only reinforced those concerns.
“A call will have to be made sooner rather than later whether the economy can afford the rupee at these levels,” said a senior government official.

With inflation hitting low, its a perfect opportunity to depreciate Indian Rupee.

 

[jetray]

With inflation hitting low, its a perfect opportunity to depreciate Indian Rupee.

View attachment 424692

View attachment 424693

Other than for exports , rest of the areas should be fine.
We can import more goods. Only countries which are dependent on exports keep depreciating their currency and virtually end up giving indirect subsidies to other economies.

In fact this is good opportunity to buy more capital goods from outside.

 

[anant_s]

If oil prices keep low, there actually is an incentive in Rupee devaluation. RBI and Indian markets are aflush with dollars poured in by FIIs and after last years Demonetization drive, there is huge liquidity in market. If rupee goes back to 67-68 level, IT industry will have a lot to smile about as would be gems exporters.
Only thing that strong rupee is doing is reduce oil import bills in dollar terms. However with Petroleum producing countries already reeling under overproduction and shale oil boom, it doesn't look crude will cross USD 60/ barrel in near future and therefore we have a lot of space to fiddle around with value of rupee.
@Nilgiri

 

[lastone]

Shallow article.
Where are the examples which show that the strong rupee has actually hurt exports.?

 

[jetray]

here actually is an incentive in Rupee devaluation

tell me one good reason why need to devalue the rupee? we are not export oriented economy but a service oriented economy. If we want to make in India we need to import capital goods like machinery. With weak rupee it becomes harder for local companies to buy high end manufacturing equipment. It also ends up driving out lot of talent outside the country who want to make more money.

We have to absolutely discard this western idea of export oriented growth it is nothing but indirect subsidy for foreigners which benefits them. Our aim should be to grow by increase in internal consumption. A strong rupee will also help Indian companies acquire foreign companies which can be used be bring in better technology.

 

[Nilgiri]

tell me one good reason why need to devalue the rupee? we are not export oriented economy but a service oriented economy. If we want to make in India we need to import capital goods like machinery. With weak rupee it becomes harder for local companies to buy high end manufacturing equipment. It also ends up driving out lot of talent outside the country who want to make more money.

We have to absolutely discard this western idea of export oriented growth it is nothing but indirect subsidy for foreigners which benefits them. Our aim should be to grow by increase in internal consumption. A strong rupee will also help Indian companies acquire foreign companies which can be used be bring in better technology.

You both make good arguments. India has good opportunity to use the current buffer margin on offer to get realised data on where the best balance lies in current economic scenario (both internal and external). Export promotion through depreciated rupee value only really matters if we can get good labour (amounts) employed there....and that remains to be seen (modi term 2 may illustrate the trend there). Each band of 1 rupee over say 10 rupee spread (from say 60 to 70) versus US dollar in remaining current term (and probably early 2nd term) of Modi must be logged and analysed w.r.t pros and cons over say 20 or so important (both intro and exit) indicators for larger economy....and contrasted with (neutral, transparent and debated).
objectives of the govt macro-economically. I say this because a lot of them may "max out" or "min out" (depending on which is preferable), have different gradients and reversibility/sensitivity on either side....and are definitely not constant trends ad infinitum... and its better to scope this out sooner than later given later we will have even more trillions on the line (opportunity cost ballooning).

This is what UPA was atrociously terrible at (they got tons of data on jobs not keeping pace with nominal economic size - thus suggesting early that it was asset inflation derived growth for most part.....yet took no concrete policy interventions and paid the price domestically when global economy hit the wall...when India should have ideally been making good hay even then given its developing nature).