 | « Back to article | Print this article |
The fall of the rupee: When is it going to stop?
The economic slowdown has brought with it numerous questions but very few answers. As the rupee continues its downward slide it could have some unpalatable consequences.
How can you and the industry cope with the problems posed by a falling rupee? How long with this crisis last? What is the way ahead? is this good or bad for the country?
Dr Ajit Ranade discussed these issues with rediff readers on Thursday.
An alumnus of IIT-Bombay and IIM-Ahmedabad, Ranade is the chief economist at the Aditya Birla Group, a multinational conglomerate.
Click NEXT to read the transcript. . .
Re fall: When is it going to stop?
Ajit Ranade says, Hello everybody. I am here to try and answer your qs. about the almighty Rupee!
Sekhar asked, since 2007 Sensex and Rupee values can be correlated each other. Sensex rises rupee appreciating. Sensex falls rupee depreciating. Why this trend continuing? Is this correlation is follow next 10 years?
Ajit Ranade answers, at 2011-12-22 14:06:17there is correlation but causation is two-way. earlier rupee followed sensex, now it seems to be the other way.
Anup asked, with a weak currency the country looks like a losser economy and badly reflects on the current government
Ajit Ranade answers, a currency is weak or strong w.r.t. a "natural" value called the real effective exchange rate. with high inflation you should expect a currency to depreciate. it depreciates until it finds the "natural" level again.
sanjeev asked, fundamental question - why rupee is falling?
Ajit Ranade answers, it's not only rupee which is falling. in past few months, mexican peso, south african rand, brazilian real have all fallen by almost 20%. the common factor is that all these countries have current account deficit. i.e. they import more than they export. so current global situation is that deficit currencies are depreciating.
Click NEXT to read further. . .
Re fall: When is it going to stop?
dheeraj asked, how do you predict the effect of coming slowdown in indian economy? especially IT sectory
Ajit Ranade answers, after global financial crisis of 2008-09, india's growth went down from 9 to 7%. it then recovered last year to 8.3. now it has fallen to 7. next year too it may be close to 7. but IT as a sector seems to be doing well. and a weak rupee will help IT since it is mostly export oriented.
Uttam asked, as an NRI .. should I be complaining or be supportive
Ajit Ranade answers, actually NRI's have a good deal recently from RBI. the NRI deposit rate ceilings have been removed. a lot of remittances are coming in. NRI's are looking at property too.
Naveen asked, Dear Ajit, I make all my money online and get paid in $$$, when everyone gets affected I am more than happy, in 2008 when $ was Rs 36, I was affected badly and not one cared. Should I care about falling rupee?
Ajit Ranade answers, if your income is in dollars (like for IT) you should be happy :)
Click NEXT to read further. . .
Re fall: When is it going to stop?
sree asked Dr Ajit Ranade please let us now how a common man, an employee and an employer is effected by this rupee fall
Ajit Ranade answers, rupee fall means crude oil is expensive. if rupee remains at 53 for long, total import bill may go up by 45k crores. that will hit fiscal deficit and eventually inflation. BUT if due to weak rupee, exports do very well, then we need to net off the costs and benefits. for a common man, petrol, imported chinese goods, overseas travel all this will be exp.
sabirhussainsyed asked, Mr. Ranade Sir, can you let us know the "Natural" level for rupee pls for the next 1-2 yrs
Ajit Ranade answers, i think rupee is too weak now, and will strengthen somewhat. so for next two years there should be slight strengthening bias.
Pratap asked, Which are the sectors in the Indian economy which will benefit from the fall in the rupee and which sectors would be adversely affected? Thanks
Ajit Ranade answers, all export sectors to benefit. IT, engineering, project exports, textiles, tourism. even industry, which faces threat of chinese imports will be benefiting.badly affected: outbound travel, perhaps aviation, oil, energy
Click NEXT to read further. . .
Re fall: When is it going to stop?
aq asked, In response to your answer to Mr. Sanjeev's earlier question here in this chat. If our currency is getting weaker because we import more than we export, in that case, why does US$ continue to get stronger after being the largest importer and under huge debt?
Ajit Ranade answers, very good question. the US dollar is also the world's reserve currency. it is the only country which has FOREIGN debt denominated in its own currency. also when there is anxiety, panic, risk aversion in the world, investors flock to american shores, making the dollar stronger. investors feel that US is a safe haven.
anilalwaye asked, Some countries are very keen on keeping their currency values down in order to be able to export easily, what about our country?
Ajit Ranade answers, Artificially keeping the currency low has a cost attached to it.It is not a good idea.
Prasad asked, Still how long this Fall may happen. Is there any approx time u assume?
Ajit Ranade answers, for the next 6 months and then it will start strengthening.
Click NEXT to read further. . .
Re fall: When is it going to stop?
Mihir asked, So our current account deficit is high, what about our gold and other reserves ,do they matter ?
Ajit Ranade answers, Our reserves (including gold)are just adequate. In case of a panic exodus they will not be enough
BDubey asked, How rupee is falling as indian economy is growing on the otherhand American economy is in problem yet doller srengthen 20% against rupee.
Ajit Ranade answers, american economy is growing at about 2%. it is 10 times bigger than india. hence US 2% growth is = india growing at 20% per annum. our growth is around 7%. the dollar's strength is because of global risk aversion.
kamal asked, Rupee is depreciating due to rising inflation. What is causing inflation to rise in our country ?
Ajit Ranade answers, inflation because consumption growth faster than production growth. i.e. supply capacity bottleneck, constraints. e.g. people's incomes are rising by 7% in real terms, but food production rising only at 4%. inflation also made worse because of global rise in oil, metals etc
Click NEXT to read further. . .
Re fall: When is it going to stop?
Harmeet asked, DO you feel that with the current scenario and the way the Indian Government is handling things the India Ruppee can ever gain Value. The Economy is slowing. The Inflation is rising . The cost of basic necessities for a common man is going out of reach. Traveling abroad is becoming costly. Land of Gods India can only be saved by Gods. As Our Political System is so corrupt nothing works without money.
Ajit Ranade answers, please note that an artificially strong rupee is not in our interest. ditto for too weak currency. it is not the government which manages the currency. that is just consequence of policies. i agree that inflation is a big problem facing india for past two years. but today we learnt that food inflation has fallen to 1.8%
naveenm asked, Dear Sir, Is rupee being manipulated by black money hoarders, Our industrial output is very low but still our exports are showing tremendous growth and huge amounts are being remitted. I think there is nexus between black money coming back to India in the guise of exports and they are booking profits by getting Rupee weakened. your comments on this
Ajit Ranade answers, i don't think india's exports have an over-invoicing scam. you can cross check india's exports with the importing country data. or with UNCTAD. there does not seem to be any discrepancy. as for black money - imagine how much money is spent on elections? is that all within limits specified by the election commission?
Click NEXT to read further. . .
Re fall: When is it going to stop?
Jayaraman asked, Us economy is on the verge of collapse,india is in the position of balaced economy. so our rupee should be goes up instead of decline
Ajit Ranade answers, rupee is not just a barometer of "strength" of economies. also depends on import and export demand, relative differences in inflation and interest rates, opportunities and returns from stock and property markets, and also whether the capital a/c is fully open. lots of factors.
Vijaya Bhaskar asked, Hello Mr. Ranade, Do you think Rupee will survive if an economic crisis like 2008 repeat in 2012 in US and Europe ?
Ajit Ranade answers, chances of a 2008 type of crisis in europe is remote - almost zero. also please remember than unlike in the first quarter of 2009, no major economy since then has had a NEGATIVE growth in any quarter. small, but positive,.
sabirhussainsyed asked, is gold a good hedge against rupee deppreciaion?
Ajit Ranade answers, yes i think so. but i am not an investment expert. besides you can't put all your investment in gold
Click NEXT to read further. . .
Re fall: When is it going to stop?
sabirhussainsyed asked, can somebody give me rupees pls, no matter whether it is strong or weak, i dont mind
Ajit Ranade answers, mario miranda the famous cartoonist said, i don't mind the falling rupee, so long some of it falls on me :)
vimal asked, if china & japan can survive by weaken thier currency why not india ?
Ajit Ranade answers, japan's yen is at an ALL TIME HIGH! japan's currency has been ultra strong in the past five years. and they are an exporting nation. china kept its currency artificially weak, but it paid a cost too.
pal.sachidananda asked, well sir what will be the affect of the falling ruppee on the inflation
Ajit Ranade answers, falling rupee makes oil expensive, hence can cause inflation.
Click NEXT to read further. . .
Re fall: When is it going to stop?
mohammad asked, what is actual price of ruppe against dollar
Ajit Ranade answers, what is the actual price of tomatoes? they were 80 rupees a kilo a few months back. now they are 40. in summer they will again go back up. similarly price of rupee fluctuates. fortunately not as much as other commodities. rbi policies try to keep volatility low.
naveenm asked, Rough estimates suggest that FIIs pulled out approximately $500 million since November 15, 2011 from India. They have bought dollars to weaken rupee. India's exports in September 2011 grew by 36 per cent as against exports during September 2010. If you thought September 2011 was an exception, ponder this: Exports for the first six months beginning April 2011 recorded a robust 50 per cent increase when compared to the same period last year. According to the data published by the Union commerce ministry, the growth of core industries for the first six months of this fiscal was a tepid 4.9 per cent, with sectors such as coal and natural gas even recording negative growth.
Ajit Ranade answers, agree with your facts
Click NEXT to read further. . .
Re fall: When is it going to stop?
sabirhussainsyed asked, Hi Sir, Pls answer my question or atleast give us some numbers on what is the "natural" level for rupee in the current conditions of 7% GDP
Ajit Ranade answers, i think around 48 to 49. as i said earlier i think there may be a strengthening bias later next year.
vishal asked, Mr. Ranade, as you said India has current account deficit, however, never in India's history has export been more than imports, and rupee has even touched 40-levels, then why 52-53 now? Is it because the investors have lost confidence in India because of corruption and the existing government ?
Ajit Ranade answers, true. india's deficit was always financed by foreigners who brought in money into stock markets, FDI etc. this time investors are nervous. and preferring to park their funds in u.s. government bonds.
siva asked, what will happen if the government sells the gold purchased for dollars?
Ajit Ranade answers, it's not the govt, but rbi which holds the gold. they bought it cheap, so if they sell now they would make a handsome profit.
nok asked, why everyone hides the fact that INR is falling against every currency, not against just US dollar. Our economy is sinking, in a nutshell.
Ajit Ranade answers, falling rupee is not same as falling economy. rupee fell by 15% since august, economy is rising by 7% this year.
Ajit Ranade says, it's been a pleasure chatting with you on rupee/dollar. wish you all a very happy and prosperous 2012. see you at the post budget chats.