Depreciating Indian rupee

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This presentation explains the reasons for the fall in the value of Indian Rupee, the cause and effect. Also what the government must do to curb the fall is included.

This presentation explains the reasons for the fall in the value of Indian Rupee, the cause and effect. Also what the government must do to curb the fall is included.

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  • 1. Depreciating Rupee – The Cause and Effect Leena B. Dam
  • 2. Top 5 economies by GDP (in terms of PPP) Country GDP(PPP) $ Billion United States 15,653 China 12,383 India 4,711 Japan 4,617 Germany 3,194 As per IMF, 2012 ranking
  • 3. Credit Rating of BRICs and US Country S&P Rating S&P Future Outlook Moody's rating Moody's Future Outlook Fitch Rating Fitch Future Outlook BRAZIL BBB Lower Medium Grade NEGATIVE Baa2 Lower medium grade POSITIVE BBB Lower medium grade STABLE RUSSIA BBB Lower Medium Grade STABLE Baa1 Lower medium grade STABLE BBB Lower medium grade STABLE INDIA BBB- Lower medium grade NEGATIVE Baa3 Lower medium grade STABLE BBB- Lower medium grade STABLE CHINA AA- High Grade STABLE Aa3 High Grade POSITIVE A+ Upper medium grade STABLE UNITED STATES AA+ High Grade STABLE Aaa Prime NEGATIVE AAA Prime NEGATIVE
  • 4. History of Indian Rupee with US$ exchange rate 4.79 4.79 4.77 4.78 7.56 8.39 7.86 12.36 17.5 32.42 44.94 44.09 50 0 10 20 30 40 50 60 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 1unitofUS$ Year Rupee Movement 2 per. Mov. Avg. (Rupee Movement) Source: IJRESS, Vol 2, Issue 2
  • 5. 53.843 54.434 54.354 54.978 58.366 59.755 50 51 52 53 54 55 56 57 58 59 60 61 Febraury March April May June July RupeeValue Month (2013) Avg Rupee Movement Average Rupee Movement for the period February 2013 to July 2013 Source: www.exchange-rates.org
  • 6. Reasons for fall in the Rupee value ?????
  • 7. External Factors Increase in US Treasury yields – 10 year treasury yields have gone up from around 2.10% to 2.76%, and currently it is circling 2.67% Revival of the American economy – American economy’s growth rate – 1.7% (during April – June 2013) – 1.1% during Jan – March 2013 – Unemployment rate 7.4% - lowest in the last 4.5 years
  • 8.  FIIs exit from the Indian Market http://www.moneylife.in/article/weak-fii-inflows-enough-to-weaken-the-rupee/33827.html
  • 9. Period FII flows Rupee movement July 2013 Outflow of $3 billion Rs. 61 June 2013 Outflow of $ 7.5 billion Rs. 60 April-May 2012 Outflow of $ 690 million Depreciated to Rs 55.73 from Rs. 51.16 July - Sept 2012 Inflow of $ 8 billion Appreciated to Rs 52.70 from a low of Rs. 56.31 Dec 2011 - Feb 2012 Inflow of $ 13 billion Appreciated to Rs. 49.07 from Rs. 52.17 May 2013 Inflow of $ 6 billion Depreciated to Rs. 56.50 from Rs. 54.29
  • 10. Internal Factors  Free Import Policy
  • 11. www.commerce.nic.in Types of Goods Imported
  • 12. Import Bill from 2009-10 to 2011-12 (for petroleum and crude oil) 409077 507382 726386 0 100000 200000 300000 400000 500000 600000 700000 800000 2009-10 2010-11 2011-12 Import Bill Import Bill Source: Ministry of Petroleum and Natural Gas All value in Rs. Crores
  • 13.  Increasing Current Account Deficit
  • 14.  India’s external debt reaching new highs
  • 15.  Poor export performance
  • 16.  Political turmoil and uncertainty  Free and unrestricted travel abroad
  • 17. Effects of Rupee Depreciation * Increase in Import Bill * Higher Inflation * Fiscal Slippage * Increase in Cost of Borrowings * Higher cost of foreign travel * Higher burden for students studying overseas
  • 18. Beneficiaries of Rupee Depreciation * Exporters * Indian IT sector - Every one per cent change in rupee-dollar has a 40 basis points impact on the margins on the net profit. * Tourism Sector * On individual basis – Indian expatriates gain while transferring money to India.
  • 19.  RBI Measures to curb Rupee fall Short term interest rates on bonds have been increased by 300 bps Liquidity Adjustment Facility (LAF) to be 0.5% of total liabilities of individual banks Total bank borrowing to be capped at Rs. 37000 Cr Penal lending rate to banks under Marginal Standing Facility (MSF) at 10.25%
  • 20.  Steps to balance the Rupee Finance minister is positive about the agriculture growth and also about financing the current account deficit Better export policy to promote exports in view of sluggish global demand New dollar inflows by way of sovereign bonds or NRI deposits • May increase foreign debt, High cost due to lower credit rating Liberalizing FDI Policy - Insurance, retail, etc.
  • 21. Contain fiscal deficit versus the growth rate • Reduce subsidies on food, fertilizers and petroleum – 2.5% of GDP Reduce import of gold and non-essential luxury items • Gold import restriction - 20% of it has to be exported Increase government expenditure in productive sectors to promote Industrial output • Currently negative (-1.6%)
  • 22. Thank You