Retiring rupee

Dr. Akansha Jain
email:
dr.akanshajain@gmai
l.com blog –
http://drakanshajain.bl
ogspot.in 1

Retiring Rupee

Presentation by-
Dr. Akansha Jain
Department of Management
Studies
DGI, Greater Noida
Dr. Akansha Jain email: dr.akanshajain@gmail.com blog
http://drakanshajain.blogspot.in 2

ROAD MAP
 Determinants of currency movement
 Rupee movement since 1991
 Current scenario
 Reasons for depreciation of rupee
 Impact of rupee depreciation
 RBI corrective role and why it has
failed
 Suggestions to improve

Dr. Akansha Jain email: dr.akanshajain@gmail.com blog –

Determinants of currency
movement
 Balance of Payments
 Interest Rate Differentials
 Inflation
 Fiscal Deficit
 Global economic conditions
 Speculation and fear
Multiple factors determine an exchange rate with each one
playing an important role over time


Rupee Movement Since 1991

Source: RBI

Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 6

CURRENT SCENERIO


 Rupee hits record low at 57.37 vs US$
on 22 June 2012…………….
 From a steady 1$ = 45 rupees till late
last year the rupee has lost by a
whooping Rs12 or it has depreciated by
27%(as on 22 June 2012)


The depreciation is far larger than what we saw during some of the other
episodes of economic turbulence in the last two decades, such as the Asian
financial crisis of 1997 (13.86%) and the global shock after the collapse of
investment bank Lehman Brothers in late 2008 (9.2%).


Reasons for Rupee
Depreciation

Growing European debt crisis fueled global risk
aversion weak domestic fundamentals coupled
with policy paralysis aided sharp rupee

WHY???????????????
??????????????


•Sentiments of people (Withdrawal by
FII’s, no firm policy by congress, gold
accumulation, dollar strengthening)
•Speculation
•Global investors dumped currencies of
emerging countries like India to buy U.S.
dollars


• The foreign exchange (Forex) reserves as of June 15,
2012 were around $289 Bn, just around $ 20 Bn lower
than a year ago, and about $ 2 Bn higher than a week
prior. The Forex situation has been fairly stable for the
past year, with only minor and ‘routine’ fluctuations.
• FII remains long-term bullish based on equity inflows,
with massive net inflows of around Rs 36,000 Cr so far
during 2012. Though there were net outflows in April
and May of Rs 1,600 Cr and Rs 3,100Cr, respectively,
the amounts are minor. In the current month to date,
there have been minor net inflows of around Rs 500
Cr.” (to June 26th).


Impact of rupee fall
The gainers…………
 Exporters (particularly who are using the
resource and raw materials by paying them in
INR and getting return in USD)
 Companies earning in USD
 Families of those working overseas
 Tourism may get small boost as foreigners will
have to pay fewer dollars for vacationing in
India.
 Companies that manufacture export substitutes
will get protection through cheap imports.
 Indian Origin people sending foreign currency to
India and converting them into INR and making
permanent investment in India , the reason
being they would be getting more INR for lesser
amount of USD.

The losers……….
 The worst-hit will be companies that import components
and other raw materials for products they manufacture
in India. These include auto-makers, and producers of
consumer durables like air-conditioners and televisions,
or sellers of imported electronic gadgets like speakers
and headphones. These companies are already facing
the prospect of shrinking domestic sales as inflation has
been high in India, and now they will have to pay more
rupees for their imports
 Companies will have to pay more for repaying foreign
debt.
 Higher oil import bill could put greater strain on govt
finances, given clamor for higher subsidies
 Students will have to pay higher fee and living charges
in rupee terms. Medicare to also get more expensive.
 Overseas travel to get more expensive as you will have
to shell out more rupees for the same amount of
dollars.
 Imports to get costlier, hit oil and commodities.

The losers……….
 Foreign car makers Toyota Motor Corp. and Honda
Motor Co. have already voiced concerns that imported
parts could turn costlier and Toyota has said it may
raise prices of its cars and sport-utility vehicles.
 Infrastructure companies which build roads, highways
and airports could find it difficult to raise money
overseas to pay their projects as foreign investors may
be deterred by India’s volatile currency.
 The weak rupee is also likely to stoke inflation, reducing
the room for the central bank to further cut interest
rates. High rates have already made it very expensive
for companies to take loans from banks. And currency
weakness could hurt the financial performance of Indian
refiners and oil marketing companies as it makes oil
imports more expensive


RBI corrective role


Actions needed
 Work on investor confidence
 Check demand for crude products by
rationalizing prices
 Promote exports
 Focus on fast-tracking infrastructure
projects
 Administrative measures have been
taken to curb market speculation


Remedial measures
 Focus on Knowledge Capital that can spearhead the growth in
agriculture, industry and trade (either borrow it or create it)
 Simplify trade procedures in order to promote economy and
entrepreneural spirit within population
 Build infrastructure in every sphere for augmenting growth and
proper utilization of resources
 Promote Export of manufactured goods and ban export of natural
resources
 Promote technologies and systems that could cut green house
effect and improve our trade balance
 Develop Bulk Water Transport system for inland sales within India's
long coastline
 Promote Railways for bulk transfer of resources within the
hinterland
 Promote use of renewable energy in every sphere possible: Solar
Cookers, Air Conditioners, etc
 The RBI should sell dollars from its reserves only to smooth out
sharp volatility in the rupee

What can we do as
individual………..
 Be Indian Buy Indian
 Return of NRI to Own Country
 Stop to Import All Zero Technology
Products


Retiring rupee

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