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High fiscal and current account deficit
Lack of foreign investment
Tax and manufacturing reforms
• A continuous rise in prices when compared with
last year statistics
Whole sale Price Index(WPI) Inflation.
Consumer Price Index(CPI) Inflation.
• Current Account Deficit(CAD)
• Statutory Liquidity Ratio(SLR)
Wholesale Price Index(WPI)
• An index that measures and tracks the changes
in price of goods in the stages before the retail
• It shows the average price changes of goods
sold in bulk, and they are group of indicaters
that follow growth in the economy.
• WPI inflation rate is 10% in Sep 2011 to 7.7%
in March 2012
Consumer Price Index(CPI)
• CPI is weighted average of prices of a basket of consumer
goods and services such as transportation, food and
• CPI is calculated by taking price changes of each item in
the predetermined basket of goods and averaging them.
• Used to assess price changes associated with the cost of
• CPI rose from 8.8 per cent in February to 9.4 per cent in
March and further to 10.4 per cent in April
Current Account Deficit(CAD)
• When a country’s total imports of goods, services and
transfers is greater than the country’s total exports of
goods, services and transfers.
Statutory Liquidity Ratio(SLR)
• SLR is the amount of liquid assets, such as cash, precious
metals or other securities that a financial institutions must
maintain as reserves other than the cash.
Impact Of Changes In Global Economy
Global winds :
Reduced growth in South Asia
Impact of natural calamities in Japan
Modest signs of improvement in US
European debt problem.
The currency depreciation is
largely due to external and
internal factors. India runs
high current account deficit.
It means the country imports
more goods and services than
Rising oil demand.
Rupee has fallen from 45 per dollar in May 2011 to 57
level in June 2012.
global recovery, euro zone problem resolution
Import restraint (especially oil and gold)
Why the Indian rupee appreciated?
• Foreign Direct Investment (FDI)
• External Commercial Borrowings (ECBs)
• Foreign portfolio inflows
• Remittances from Indians working overseas
• RBI had raised cash reserve ratio to control inflation.
Painful Squeeze – Non IT Firms
• The smaller firms, including those that rely on the U.S. market
are clearly hurting.
Some 65% of our exports come from the SME segment. There
are 15 million workers in this sector. The SMEs have profit
margins of barely 5-10%. If the rupee rises, as it has, their
entire profit gets wiped out
• The Confederation of Indian Industry (CII) says that the worst
hit are the textile and leather sectors
• Garments exporter and auto-part suppliers are hurting even
more. Many of them banked on the dollar appreciating
routinely after signing a contract
Challenges of rupee appreciation
• A one per cent rise in the rupee against the dollar will have a 7580 basis points impact on the operating margins for IT
• Exports will be badly effected.
• Salaries of people working in MNC's would come down
• If the rupee appreciation continues, we have to go out and look
for people in low-cost areas
RBI’S Steps Towards Economic Growth
Government could cut the subsidies on Fuel and Fertilizers.
• Raise the borrowing limit of scheduled commercial facility(MSF)
from 1% to 2% of their Net Demand and Time
• Banks can continue to access the MSF even they have excess
Statutory Liquidity Ratio(SLR).
The government is planning to allow 51% Foreign Direct
Investment(FDI) in multi brand retail.
• Government is targeting to bring the fiscal deficit which
stood at 5.76% of GDP in 2011-12 down to 5.1% in current fiscal.
• External Commercial Borrowings limit has been lifted to $40bn
from $ 30bn earlier. This would be to repay outstanding rupee
loans of Indian businesses
• This comes as a relief to the manufacturing sector. The rupee loans
are expensive while foreign currency loans are cheaper.
• The Reserve Bank of India said it would allow companies to
borrow more from overseas to pay back their high cost rupee loans.
• The Economic Times
• Live Mint
• The Hindu
• Business Standard
• World Wide Web