The Rupee's southward plunge, to its lowest level against the dollar, has set off alarm bells all around, but the currency's travails are but a mirror of what is ailing the Indian economy these last two years.
In response to the fall, on a day when the stock markets too lost nearly two per cent, Finance Minister told Parliament on Wednesday, "This is a difficult world, international situation is difficult. Country after country is facing major economic crisis."
Although he clarified that there was no need to press the panic button, yet, there are not many takers for his limited optimism.
What went wrong with the economy which not too long ago was the toast of the economy? When did India take its eyes off the economic drivers? What is the way forward? What must India do to regain its impressive GDP growth?
Addressing the problem on Rediff Chat is M K Venu, managing editor of Financial Express newspaper, who has 28 years of experience in financial journalism, at notable publications such as the Economic Times, Business Standard, Hindustan Times, The Statesman and Patriot.
Here is the transcript:M K Venu says, Good afternoon, Iam now available for a discussion on India's economy and the state of rupee.
anant asked, Can you explain the role of euro crisis which has affected our rupee and why ?
M K Venu answers, at 2012-05-17 15:30:40 Euro crisis is affecting the rupee because 40 per cent of all dollar debt accessed by Indian companies come from European banks. Now European banks are shrinking their balancesheets and reducing exposure to Indian companies. So less dollars are flowing into India in the form of debt as well as equity. So rupee is weakening rapidly as a consequence. It is a simple demand-supply dynamics.
sid asked, rupee faling is good for IT industry...:)
M K Venu answers, Weakening rupee is good for IT companies like Infosys, Wipro and TCS as the bulk of their earnings are in dollars. So if dollar apprecaited by, say 10 per cent, their rupee income automatically goes up by 10 per cent.
Akshay asked, Is there a possibility of the rupee touching 65?
M K Venu answers, Rupee cannot touch 65 to a dollar because India's Central Bank is defending the rupee by selling dollars in the market. At present the Central Bank is defending the rupee at rougly Rs.55 level. The RBI increases the dollar supply by selling from its $270 billion reserves.
abcfgh asked, future of gold, and dollar. will it be wise to remitt dollar right now or wait some more time?
M K Venu answers, My view is gold will remain the safest investment bet as long as the world economy remains in crises mode and the threat of inflation remains across most parts of the world as is the case now. Gold is the best hedge against inflation. In India the best investemnt combination in the past 2 years has been to put one third money in gold, one third in government debt and one third in equity.This is the best hedge.
dollar asked, why is Rupee falling continuously? why cant we make ruppe as strong as dollar? countries like singapore have dollar which has value much greater than rupee although singapore is very samll country interms of are ..population compared to India..then why is singapore dollar much prescious then indian rupee
M K Venu answers, We cannot compare Singapore with India. Singapore is a net exporting economy and India is a net importing economy. Net importing economies are generally more vulnerable to currency risks during crisis time because they need a certain minimum quantum of dollar inflows to meet their energy and other inelastic import requirements.
abcfgh asked, future of gold, and dollar. will it be wise to remitt dollar right now or wait some more time?
M K Venu answers, Gold is a better bet than the dollar in the long run because dollar is in long term decline even if temporarily it is strengthening because of Euro's persistent weakness. The consensus is the dollar is also in long term decline and Asian currencies will strengthen eventually as growth and productivity are shifting there in a big way. If the axis of economic power is shifting away from the West then it stands to reason that emerging market currencies will become stronger over a period of time. However, emerging markets cannot escape short term crises as it is dependent on capital from the West. The West remans a primary capital supplier.This could change once the Yuan or rupee becomes a major currency 20 or 30 years from now.
srinivasan asked, future of silver? rupee in 2-3 months range?
M K Venu answers, Silver is far more volatile than gold as the market for silver does not have depth like gold has. Silver can therefore witness much more volatile movements. My three month view on the rupee would be in the Rs.54 to Rs.56 range.
srinivasan asked, future of silver? rupee in 2-3 months range?
M K Venu answers, Silver is far more volatile than gold as the market for silver does not have depth like gold has. Silver can therefore witness much more volatile movements. My three month view on the rupee would be in the Rs.54 to Rs.56 range.
dollar asked, is it gud time to buy gold or IT company stocks as rupee is going down?
M K Venu answers, Both gold and IT company stocks are good bets in the medium term.
Rupee asked, Will exist of Grecee from Eurozone afecting rupees ?
M K Venu answers, Greece exit may not affect the rupee so much. In fact Greece exit may provide final clarity over Greece's status and could even improve the market generally.
asa asked, CONSIDERING WEAKNESS IN RUPEES WHY SHARE PRICES OF EXPORT COMPANIES ARE NOT GOING UP.
M K Venu answers, Export companies' share price need not go up uniformly just because rupee is depreciating. Your primary reason for buying an export company stock much be based on the fundamentals of the company. The gain on rupee depreciation could also get reversed as the rupee might start appreciating in due course once GDP growth is back on track at 8% plus and the Indian economy recovers.
vipul asked, any chance of RS become 46- 48 against USD?
M K Venu answers, Once India's economy recovers and GDP growth is back close to 8 %, I have no doubt that the rupee will be back to Rs.47 to Rs.49 range.
moneypenny asked, Why is the value of the rupee depreciating at a faster pace compared to other currencies?
M K Venu answers, Indian currency is depreciating faster than other currencies because India has a relatively big current account deficit of close to 4% of GDP. This translates to about %75 billion. It means India necessairly needs $75 billion of net capital flows in the form of equity and debt flows.In 2011-12 Indis was short by about $15 billion and had to pay out of Central Bank's forex reserves. This creates pressure on the rupee. India's Planning Commission Deputy Chairman Dr.Montek Ahluwalia says India must contain its current account deficit at under 3% of GDP which seems sustainable.
Vinay asked, Can we expect to see Rs60 in 2 to 3 Months?
M K Venu answers, Can go down to Rs.60 if Eurozone goes into a bigger crisis. Otherwise it would remain in the Rs.54 to Rs.56 range.
sandy asked, what is near future for dollar
M K Venu answers, Dollar will strengthen in the short run because it is seen as a safe haven by the market especially with Eurozone not getting resolved.
garib asked, what is near future of INR vs japanese Yen
M K Venu answers, Ruppe value against Yen is linked through the dollar.If dollar appreciates against the Yen then rupee also does the same given that the rupee-dollar remains the same. Similarly when Yen appreciates against the dollar, which had been happening periodically after the global meltdown in 2008, the rupee would also weaken against the Yen.
M K Venu says, Thanks for the chat. Interesting questions, I must say.
The Rupee's southward plunge, to its lowest level against the dollar, has set off alarm bells all around, but the currency's travails are but a mirror of what is ailing the Indian economy these last two years.