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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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    Currently USD is traded at 65.34 INR. If we can reach Rs 60 a USD than it will be a marvelous achievement of BJP Govt.
     
  2. BlackOpsIndia

    BlackOpsIndia Developers Guild Developers -IT and R&D

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    Currency value has more to do with trade balance with major trading partners and relative strength of currency with respect to those currencies. There is an index of how ₹ is fairing with respect to those currencies and RBI keep track of ₹ accordingly.

    I hope to do a detail post with exact terms and latest figures released by RBI of those metrics.
     
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  3. mirage

    mirage FULL MEMBER

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    analysis are not completely wrong . this always happens when money ( not smart money ) starts coming into some economy ( and it has not yet started coming inside Bharat full guns blazing ) . moreover we have trade deficit so appreciation wont hurt us more than over depreciated rupee .
     
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  4. mirage

    mirage FULL MEMBER

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    yes sir , it will settle around 58 - 60 ultimately
     
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  5. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    That will be a great value addition. Pl do that.
     
  6. Nilgiri

    Nilgiri Lieutenant GEO STRATEGIC ANALYST

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    Its not a one size fits all solution. Essentially it ultimately depends on the price elasticities of the products we export compared to those we import w.r.t the foreign market.

    Let me give you some extreme simplified examples:

    Say hypothetical country A imports only price sensitive commodities (which are easily sourced from within the country as well if needed) as sum total of all its imports and exports something extremely in demand (lets say a form of energy that only it has the know how/source of).

    Effectively it has near monopoly on what it exports to the world and high competition (from even within its borders) for what it imports. It means any shift in exchange rate of this country A's currency with the global currency (USD) would not change its export volumes a whole lot....but it would only affect what it imports. Thus it would want its currency to buy as much USD as possible per unit (esp if what it exports creates way more good jobs than what it imports being produced at home)....given this would effectively mean terms of trade would be the most favourable. It would always mean it earns way more forex per unit it exports and buys a lot more of whatever it imports per unit of forex.

    Lets compare to hypothetical B which has extremely price elastic exports (high world competition) and prince inelastic imports (high world monopoly w.r.t what you can produce internally). If the currency appreciates, what you save from the import bill being less will be much less compared to what you lose from your exports. Your terms of trade would worsen, thus you would always prefer depreciation (esp again if your export-based industries create a lot more jobs than importing-dependent ones).

    Most large economies are very complicated and have multiple profiles involving both country A and country B scenarios especially with the way global supply chains work these days.

    You have to be careful desiring appreciation or depreciation (esp long term) because you have to investigate:

    a) what is prompting the long term change (esp is it the result of higher or lower efficiency)

    b) What is the net effect on jobs w.r.t capital/equity?

    I talked about it with @Rain Man a while back on the other forum when he was calling for a blanket increase in tariffs on China. I advised him the strategy would need to look at the exact import basket (and look at their price elasticities...esp their role in any job creation within India). For example we would not want to increase tariffs on OEM components for say mobile phones given these provide a lot of value-added assembly jobs within India. But we can certainly look at increased tariffs on those goods that are more easily replaced within India and are outpriced by small (price elastic) margins right now and also have room to provide lots of jobs at low capital investment etc.

    Thus the exporting industries with the strongest assured volumes globally (highest inelasticity) would not mind appreciation...especially if its their overall improving fundamentals in factors of production (esp labour) that are prompting the appreciation in the first place.

    Those industries producing products/services with the most sensitive elasticity would definitely hate appreciation....but likewise enjoy depreciation.

    Industries reliant on importing would be the reverse.

    Then the whole picture has to be taken into account regarding the jobs/equity ratio for all of these 4 possibilities (each is also a spectrum and there is often much intermingling of them in larger multi-discipline companies)....given its really jobs that matter in the end for India.

    Its not always a clear cut scenario basically.
     
  7. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    It is 65.09 against a USD. Very very big jump in last few days. 3% of economy is added in nominal term in last few days.
     
  8. layman

    layman Aurignacian STAR MEMBER

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    Appreciation of currency has derogatory effects in terms of exports. Products are gonna be costly. Marginal devaluation like Chinese do are the best which can help in correction of the value fluctuations.
     
  9. Nilgiri

    Nilgiri Lieutenant GEO STRATEGIC ANALYST

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    Please read a couple posts above yours. If the appreciation is being propelled by Indian exports (esp job intensive) to begin with, then theres little to worry about. So much value has been shed by the INR, that there is bound to be a sustained recovery of its international value at some point.
     
  10. layman

    layman Aurignacian STAR MEMBER

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    I have gone through this whole thread before posting my view point.

    Current Valuation has stabilized the economy, My view point is too much appreciation of driven by Indian Exports is going to drive the value of exports costlier to a limit where it will start declining.
    What India has to offer which no other country can do ? That will the key point to valuation of the currency rather than export driven.
     
  11. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    As i said, Our currency is about 3.8 times under valued so your apprehensions at this movement are not relevant at this stage.
     
  12. layman

    layman Aurignacian STAR MEMBER

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    Well if it is undervalued what are criteria that shows it can sustain appreciation. Please go through economics of nations.

    This stage or any stage my opinion what blanket opinion it didn't specify any stage.
     
  13. layman

    layman Aurignacian STAR MEMBER

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    Let me clarify properly before members reply without knowing the history.



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    The journey of Indian rupee since 1947 and Forecast 2015: Dollar vs. Indian Rupee
    • Published on April 6, 2015
    Mani Agarwal Dixit


    Business Analyst - Project Coordinator
    In 1947 i.e., when India accomplished its independence, there were no outside borrowings on the balance sheet of India thus the value of Indian rupee was at parity with the US dollar. But Indian rupee went through two phase of devaluation and in August 2013 India economy was hit to bottom-most level. As a result of which India rupee fall below 68.75 per US dollar mark which means Indian rupee had chronicled a record low of 69 times against the past 68 years since independence in 1947. In this article, we will see through the history of different factors resulted in the two time devaluation of Indian rupee since Independence, current Dollar vs. Indian rupee conversion and forecast of Dollar vs. Indian rupee conversion for 2015.

    Journey of Indian rupee since independence in 1947

    Though at the time independence i.e., on 15th August 1947 the exchange rate between Indian rupee and US Dollar was equal to one (i.e., I US Dollar = 1 Indian Rupee). As there was no outside borrowing/ loans on the balance sheet of India. But when British left India, Indian economy was in a paralyzed and begging state thus under the resilient leadership of then Prime Minister of India Pandit Jawahar Lal Nehru, the path of overall development of India was developed and formulated in the form of five year plan to address below problems:

    1. Poverty
    2. Foreign Trade
    3. Necessity of fast industrialization
    4. Increase in population
    5. Growth and improvement of natural resources
    6. Capital insufficiency and market limitations
    Thus, the first five year plan (1951 – 1956) was introduced to revitalize Indian economy and improve the standard of living of Indian people by prudent usage of natural resources and thus the overall development of Indian and its people by who suffered during British régime.

    For the rejuvenation of Indian economy and its people under the path of five year plan, from 1950 Indian government continuously borrowed foreign money in the form of outside borrowing/ loan which increased to the utmost magnitude in 1960s. Additionally, Indian government was facing budget deficit and was in a state that it could not borrow more additional loan from outside due to negative rate of savings. Thus, resulted in the devaluation of Indian rupee. Up till now 1 US Dollar is equal to 4 Indian Rupee. But this drift was worsened in 1966 by two factors: Firstly, two wars faced by India i.e., Indo-China war in 1962 and Indo-Pakistan war of 1965; and Secondly, major drought faced by India between 1965/66 which resulted in severe rise in prices and a drastic increase in inflation. Thus, it became mandatory for Indian government to devalue Indian rupee majorly for the first time in 1966 to import weapons i.e., precursor of a path of liberalization and thus opening of Indian economy for foreign trade. And, as a result of which Indian Rupee was devalued to 1 USD = 7 INR in 1966 under the leadership of then Prime Minister of India Mrs. Indira Gandhi.

    From 1970s till 1980s, US Dollar continued to grow stronger against Indian Rupee due to many reasons. Firstly, inability of Indian politics to inject a catalyst of robust growth in the Indian economy due to incompetency in stabilizing cordial business relation with US which was coupled with robust and sturdy economic development of US. As up till now India was dependent majorly on Soviet Union for exports. Thus, when Soviet Union was divided into 15 small nations in 1991 then India’s exports were down considerably. In addition to that, India was dependent on West Asia for oil imports, South Africa for gold, US for technology and South-east Asia for vegetable oil etc. And, to buy these items global trade currency was US dollar and the only solution of earning dollars is by exporting adequate amount of good in the world market. Till 1970s, the exchange rate was 1 US Dollar = 7.47 INR which went up by 1 USD = 8.41 INR in 1975, after the political instability due to assassination of then Prime Minister Mrs. Indira Gandhi in 1984. Secondly, after the assassination of Mrs. Indira Gandhi, Rajiv Gandhi was then elected as the Prime Minister of India. But Rajiv Gandhi was failed to introduce necessary steps for the robust development of Indian economy as well as was caught to be involved in couple of scams (i.e., Bofors, IPKF misadventure, Shah Bano case etc). All this trouble resulted in sinking value of Indian Rupee which recorded a new low of 1 USD = 12.34 INR in 1985 and in the 1990 it increased to 1 USD = 17.50 INR.

    In 1991 when P.V Narsimha rao was elected as the Prime Minister of India, Indian economy was in a state of gross negative. Therefore, he initiated the process of reforms in the form of more open Indian economy (i.e., market driven economy, allowing private sector to play major including FIIs and FDIs and reorganizing the role to be played by the government) to accelerate the trend of economic growth & development and suppress poverty. Thus, again Indian rupee was devalued in 1991 to 1 USD = 22.72 INR to eradicate the problem of fiscal deficit and balance of payment (BOP) as well as to accelerate the process of liberalization.

    Therefore, though India has encountered two major economic crisis since independence which resulted in two times devaluation of Indian rupee i.e., in 1966 and in 1991. But this trend continues and Indian rupee is losing its value due to many external and internal factors. And now in 2015 the exchange rate is 1 USD = 63.093 as on 15th March 2015 from xe.com.


    Forecast 2015: Dollar vs. Indian Rupee conversion

    According to industry experts AV Rajwade, “Indian rupee has been the second strongest currency in the international market sitting right next to US Dollar. Even though the Chinese currency i.e., Yuan has devalued to some extent against US Dollar, but till the last few days, Indian rupee was lying exactly at the exchange rate when it was in during early 2014.”

    In the same manner, according to the Economic Times some other industry expert is saying that it is important to understand that the value of Indian rupee has not depreciated but in fact that the value of Dollar has appreciated due to expectations against US that US Federal might increase the interest rates. And, this would be first hike in interest rate by US fed since 2006 as in 2014 the employment rate in US recorded a 15-year high and in February 2015 the unemployment rate was 5.5% which is down from 10% recorded in 2009. Many experts says that US fed will wait until June-July of this year or early next year to announce hike in interest rate as US fed worries about flattening recovery if there is early announcement of hike in interest rates. On the other hand, RBI is well alert about the fact that the Indian economy would not be able to grow without having stable Indian rupee i.e., FIIs inflows would not stable and as per the need of India’s current development projects. Therefore, RBI is taking all the measures in aligning with the government to give momentum to the stable growth of the Indian economy.

    The Indian economy is steadily improving with a forecast to grow at 8.5% in the next financial year which is fastest among emerging countries, said by Raghuram Rajan, RBI Governor. And, it has been predicted that RBI will further cut the benchmark rate by additional 50 points to give boost to the investor’s moral, stabilization of Indian rupee to accelerate growth and to target inflation.

    Rajan also stated that he is very positive about budget of FY 2015 -16 and said that the many medium term steps proposed by the government in the budget of FY 2015 – 16 will undoubtedly work as a catalyst in the path of India becoming center of the world’s financial activity.

    Therefore, based on above information’s about ongoing financial market trend it is predicted that the exchange rate in 2015 would be 1 USD = 62 – 63.50 INR.

    https://www.linkedin.com/pulse/journey-indian-rupee-since-1947-forecast-2015-dollar-vs-mani

    https://www.projectguru.in/publications/coal-burnt-indian-rupee/
     
  14. layman

    layman Aurignacian STAR MEMBER

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  15. HariPrasad

    HariPrasad Lieutenant FULL MEMBER

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    I am not discussing whether it will sustain or not though I believe that it will not only sustain but appreciate. I am simply saying that it is appreciating and what effects it will have on our economy.
     
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