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India added 20% of Pakistan GDP in 2 days to her economy.

Discussion in 'World Economy' started by HariPrasad, Mar 15, 2017.

  1. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    While our idiotic print and electronic media is busy in election discussion how sicularism is in danger in Modi's victory, a highly significant economic event went almost unnoticed. In last couple of days, Rupee has appreciated by 2% against USD. While people are foolishly arguing that India shall become a 5 TR USD economy in coming 10 years, I have always maintained on various forum that you guys are taking into account only Growth rate and Ignore the currency appreciation. India Rupee is valued almost 4 time lower that its purchase power and it offers a great chance of currency appreciation. In last 2 days INR has jumped from RS 66.80 a USD to 65.43 a USD which is a jump of 2% in value against USD. We need to understand what this means for us and its consequences.

    Understanding the effect on GDP.

    2% appreciation in India Rupee against USD means we have added, 2% in Indian GDP in nominal term in USD. This amounts to 2.5 Tr USDx2% is 50 bn USD which is 20% of Pakistan economy. When we struggle a lot to increase growth rate by 0.5% and people speculates whether growth rate shall be 7.1% or 7.5% so that GDP may increase in volume by same percentage and we may add to GDP in our existing level of about 2.4 TR USD. This is a straight hike of 2% in GDP nominal. 2.4 TR usd economy has just grown to 2.45 TR USD economy adding 50 Bn USD in just 2 days. This means we have further widen the Gap between UK economy and Indian economy by 2% more to whom Indian economy just overtook.

    External Debt:

    India's external debt is about 485 bn USD in March 2016 as per RBI. This simply mean that we have reduced our Debt by 2% in rupee term. This is saving of 10 bn USD while payment in Rupee which mean that we will have to Pay Ts 65000 crore less while discharging our Debt. Appreciation of 1% in Rupee value against USD saves our Rs 30000 crore which we may use for our development.

    Weapon and oil import:

    Our Oil import was 64 bn USD in 2015-16. Oil prices are rising so as the consumption. Even if I assume it to be 70 bn USD in coming year, this is a reduction of RS 10000 crore in oil Import bill and we may expect that impact of rise in crude oil price will be absorbed by appreciation in Rupee value and end user will not have to pay a price increase of Rs 1.50 per USD.

    For our weapon import, we have a plan to purchase 230 bn USD weapon in coming decade. This 2% appreciation will result in a saving of 4.6 BN USD which is about RS 30000 crore.

    Trade deficit:

    Our import is higher than the export. So Trade deficit shall narrow. We have monthly average of trade deficit between 7 to 10 BN USD. If I take it as about 100 bn USD it is a decrease in Trade deficit by 2 BN USD which is 13000 crore Rupees.

    Impact on Export:

    Obviously export has always a negative impact on Appreciation of any currency but India export is largely in IT and engineering sector etc which can easily absorb this rise. Some exports such as petroleum products which are linked with oil import and they can easily afford to ease the price as the input are also getting cheaper because of currency appreciation.

    Raising of cost effective fund:

    Recently reliance took a loan of around 700 to 800 mn USD from International market at a rate of some 2.5% interest. The greatest risk of raising fund from international market is that you will end up loosing a great amount if your currency falls. We show this happening in the case South Korea and collapsing of their economy. If Rupee starts appreciating, hedging of rupee shall be very cost effective and you can buy fund from International market at a very cheap rate which can be as low as 2% to 4%. Your servicing of debt shall be very very cheap and you can overcome the biggest factor of production which is capital in case of India.

    Conclusion:

    Appreciation is INR VS USD and other currency is a great development in India economy. After the appreciation of Rupee against USD in Vajpayee era, the economy was completely let down by foolish policies of congress and Chidambaram in particular. As Modi rightly said that it is Harvard VS Hard work. BJP government has set policies right. Rupees is by and large stable in 2 and half year of BJP government. Now Rupee has started appreciating. This will be a great achievement and a great boost to Indian economy and Rupee will head toward its correct value which should be around RS 20 a USD.


    -HariPrasad.
     
    Last edited: Mar 16, 2017
  2. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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  3. Inactive

    Inactive Guest

    What are your views on using depreciation of currency to enable profits for exporters?
     
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  4. Levina

    Levina Admin- Social media Staff Member ADMINISTRATOR

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    :(
    Exchange rate kam hogaya. Bank had sent me a reminder yesterday.

    I'm sure this is gonna come down more. Good going India! :tup:
     
  5. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    One rupee Depreciation means INR 30000 crore increase in liability and 6000 crore addition in trade deficite. I am against it. India currency is already highly under valued and it is priced about 3.8 time lower that its current purchase power.
     
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  6. Levina

    Levina Admin- Social media Staff Member ADMINISTRATOR

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    Like what China did?
     
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  7. Inactive

    Inactive Guest


    I think China has controlled it so much in order to maintain it at near parity artificially if am not wrong and now they are correcting their currency ....

    @HariPrasad
     
  8. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    With increase in price of factor of production (Labor in particular), china has lost her competitive edge in low cost production. They try to make it up by keeping her currency artificially low to stay competitive but they can not do that for a long time.
     
  9. Levina

    Levina Admin- Social media Staff Member ADMINISTRATOR

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    Economics whooshes over me. I usually call @Rain Man for help on such threads.
     
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  10. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    Why bank send you reminder? How bank knew that it is going to decrease?
     
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  11. Levina

    Levina Admin- Social media Staff Member ADMINISTRATOR

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    It sends a reminder whenever theres a fluctuation in currency rates. This so that i utilise their services for exchange, in case i want to(i think).
     
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  12. Guynextdoor

    Guynextdoor Major SENIOR MEMBER

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    Currency gain/loss is very situational. Plus currency gain is not a good thing for a country trying to be export oriented. This analysis is flawed.
     
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  13. IndiranChandiran

    IndiranChandiran BANNED BANNED

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    Somehow , I never received your tag but very informative & well written piece .

    I'm not very fluent in technical or economic matters .

    Good going @HariPrasad
    More power to you & India.May we hear of more of such economic developments in India from you .
     
  14. Grevion

    Grevion Think Tank TROLL ELITE MEMBER

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    Sensex and Nifty fall marginally today after they reached an all time high yesterday.

    Nifty hits all time high of 9,122.75, Sensex surges 616 points after big BJP win

    https://www.google.co.in/amp/m.econ...fter-big-bjp-win/amp_articleshow/57639036.cms

    China has lost the competitive edge over low cost production that's why they are trying to move up in the chain.
    Recent push under Make in China are an example for that.
     
  15. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    It is because I am new here and I generally do not tag except in case of articles posted by me. Now this will happen more frequently.
     

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