Indian	
  Economy	
  
Fiscal	
  year	
  2013-­‐14	
  
Falling	
  Rupee,	
  rising	
  $	
  	
  
and	
  	
  
Common	
  Man	
...
Indian	
  Rupee	
  and	
  US	
  $	
  
	
  
PresentaDon	
  on	
  	
  
Ø Why	
  Value	
  of	
  Rupee	
  has	
  gone	
  
dow...
What	
  is	
  Current	
  Account	
  Deficit	
  
(CAD	
  )	
  
In	
  simple	
  terms	
  
Ø  Difference	
   between	
   value...
What	
  is	
  Current	
  Account	
  Deficit	
  
(CAD	
  )	
  
In	
  simple	
  terms,	
  	
  
Ø  When	
  Country	
  is	
  s...
What	
  is	
  Current	
  Account	
  Deficit	
  
(CAD	
  )	
  
In	
  simple	
  terms,	
  	
  
Ø  CAD	
   means	
   Country	...
CAD	
  and	
  US$	
  vs.	
  Rupee	
  	
  
Ø  Higher	
  the	
  debt,	
  lesser	
  the	
  confidence.	
  	
  
Ø  Risk	
  ta...
7	
  
India	
  Current	
  Account	
  Deficit	
  &	
  Historical	
  Exchange	
  Rate	
  
	
  
Year	
   Quarter	
  
Current	
...
8	
  
-­‐1.53	
  
-­‐3.27	
  
-­‐12.58	
  
-­‐11.67	
  
4.75	
  
-­‐4.45	
  
-­‐9.20	
  
-­‐12.19	
  -­‐12.80	
  -­‐12.10	...
9	
  
Co-­‐efficient	
  of	
  DeterminaDon	
  (R2)	
  is	
  38%	
  
Which	
  means:	
  only	
  38%	
  of	
  the	
  changes	
...
10	
  
India	
  Imports	
  Breakup	
  
USD	
  Bn	
  
	
  
Imports	
  USD	
  Bn	
   Imports	
  %	
  
Year	
   Oil	
   Gold	...
11	
  
Indian	
  Lust	
  for	
  gold	
  
Import	
  of	
  Gold	
  in	
  India	
  
Year	
   Rs.	
  in	
  crores	
   Growth	
...
12	
  
Import	
  content	
  of	
  Oil	
  and	
  Gold	
  are	
  rising	
  on	
  year	
  to	
  year	
  basis	
  where	
  as	...
Indian	
  Economy	
  	
  
Contributories	
  to	
  rise	
  in	
  CAD	
  
Three	
  Factors	
  influenced	
  increase	
  
in	
...
Indian	
  Economy	
  	
  
Contributories	
  to	
  CAD	
  
Three	
  things	
  have	
  affected	
  the	
  CAD	
  	
  
2.  Ind...
Indian	
  Economy	
  	
  
Contributories	
  to	
  CAD	
  
Three	
  things	
  have	
  affected	
  the	
  CAD	
  	
  
3.	
  	...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
Ex...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
Ex...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
Ex...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
In...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
In...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
Bu...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  Bus...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Other	
  factors	
  which	
  has	
  promoted	
  this	
  slide	
  
	
  
Bu...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
	
  
Indian	
  economy	
  can	
  be	
  further	
  affected	
  by:	
  
	
  ...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Way	
  Out	
  ?	
  
No	
   short	
   term	
   soluDon	
   is	
  
visible	...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Way	
  Out	
  ?	
  
For	
  External	
  factors:	
  
Ø  Confidence	
   bui...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Way	
  Out	
  ?	
  
For	
  External	
  factors:	
  
Ø  Promises	
   give...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Way	
  Out	
  ?	
  
For	
   Common	
   man	
   /	
   Middle	
   class	
  ...
Falling	
  Rupee	
  and	
  rising	
  US	
  $	
  
Way	
  Out	
  ?	
  
For	
  Business	
  /	
  Industry	
  :	
  
Ø  Don’t	
...
 
	
  
PresentaDon	
  on	
  
	
  	
  
Falling	
  Rupee,	
  rising	
  $	
  	
  
and	
  	
  
Common	
  Man	
  
	
  	
  in	
 ...
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Dpm on indian economy falling rupee and common man (26.8.13)

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Dpm on indian economy falling rupee and common man (26.8.13)

  1. 1. Indian  Economy   Fiscal  year  2013-­‐14   Falling  Rupee,  rising  $     and     Common  Man  in  India       August  2013     1  
  2. 2. Indian  Rupee  and  US  $     PresentaDon  on     Ø Why  Value  of  Rupee  has  gone   down?   Ø Factors  responsible  for  slide  of   rupee.   Ø What  is  the  possible  soluDon  by   poliDcal  leadership,  common   man  and  businessman?   2  
  3. 3. What  is  Current  Account  Deficit   (CAD  )   In  simple  terms   Ø  Difference   between   value   of   goods   and   services  Exported  (  Sent  out  of  India)  and   Imported  (  Brought  in  India)  is  CAD.   3  
  4. 4. What  is  Current  Account  Deficit   (CAD  )   In  simple  terms,     Ø  When  Country  is  spending  more  than  it  is   taking  from  abroad,  CAD  is  created.   4  
  5. 5. What  is  Current  Account  Deficit   (CAD  )   In  simple  terms,     Ø  CAD   means   Country   is   net   debtor   to   the   World.   5  
  6. 6. CAD  and  US$  vs.  Rupee     Ø  Higher  the  debt,  lesser  the  confidence.     Ø  Risk  taking  ability  is  reduced.   Ø  Capacity  to  negoDate  is  reduced.   Ø  Higher  lending  rates.   Ø  Margins   /   surplus   (income   over   the   expenditure)     come   under   greater   pressure.   Ø  But,  CAD  is  not  the  only  factor  to  prompt   this  cyclic  effect.     6  
  7. 7. 7   India  Current  Account  Deficit  &  Historical  Exchange  Rate     Year   Quarter   Current  Account   Balance   (Current  USD  Bn)   USD/INR   Closing  Exchange   Rate   2008   Q2   -­‐1.53   46.26   Q3   -­‐3.27   48.43   Q4   -­‐12.58   50.53   2009   Q1   -­‐11.67   47.89   Q2   4.75   48.15   Q3   -­‐4.45   46.50   Q4   -­‐9.20   44.83   2010   Q1   -­‐12.19   46.20   Q2   -­‐12.80   44.57   Q3   -­‐12.10   44.95   Q4   -­‐16.90   44.68   2011   Q1   -­‐9.98   45.03   Q2   -­‐6.30   49.09   Q3   -­‐14.10   53.07   Q4   -­‐18.90   50.78   2012   Q1   -­‐19.60   56.81   Q2   -­‐21.70   52.86   Q3   -­‐16.40   54.78   Q4   -­‐22.30   54.29   2013   Q1   -­‐32.63   59.49   Q2   -­‐18.10   63.36  
  8. 8. 8   -­‐1.53   -­‐3.27   -­‐12.58   -­‐11.67   4.75   -­‐4.45   -­‐9.20   -­‐12.19  -­‐12.80  -­‐12.10   -­‐16.90   -­‐9.98   -­‐6.30   -­‐14.10   -­‐18.90  -­‐19.60   -­‐21.70   -­‐16.40   -­‐22.30   -­‐32.63   -­‐18.10   -­‐40   -­‐30   -­‐20   -­‐10   0   10   2008   2009   2010   2011   2012   2013   India  Current  Account  Deficit   Current  USD  Bn   Source  :hbp://www.tradingeconomics.com      
  9. 9. 9   Co-­‐efficient  of  DeterminaDon  (R2)  is  38%   Which  means:  only  38%  of  the  changes  in  Exchange  Rate  can  be  related  to  the  current   account  deficit  and  balance  62%  to  other  factors  (Such  as  Purchasing  Power,  Investment   Paberns,  Etc.)   1.53   3.27   12.58   11.67   -­‐4.75   4.45   9.20   12.19  12.80  12.10   16.90   9.98   6.30   14.10   18.90  19.60   21.70   16.40   22.30   32.63   18.10   46.26   48.43   50.53   47.89  48.15   46.50   44.83  46.20   44.57  44.95  44.68  45.03   49.09   53.07   50.78   56.81   52.86   54.78  54.29   59.49   63.36   -­‐20   -­‐10   0   10   20   30   40   50   60   70   -­‐10   -­‐5   0   5   10   15   20   25   30   35   2008   2009   2010   2011   2012   2013   India  Current  Account  Deficit  vs  USD/INR  Exchange  Rate  Current   USD  Bn   USD/INR  Deficit  Surplus  
  10. 10. 10   India  Imports  Breakup   USD  Bn     Imports  USD  Bn   Imports  %   Year   Oil   Gold   Others   Total   Oil   Gold   Others   Total   2002   15.31   4.56   36.41   56.28   27.20%   8.10%   64.70%   100.00%   2003   18.50   4.06   41.90   64.46   28.70%   6.30%   65.00%   100.00%   2004   21.04   6.64   52.32   80.00   26.30%   8.30%   65.40%   100.00%   2005   31.87   11.18   75.86   118.91   26.80%   9.40%   63.80%   100.00%   2006   46.33   11.47   99.26   157.06   29.50%   7.30%   63.20%   100.00%   2007   58.54   14.87   117.26   190.67   30.70%   7.80%   61.50%   100.00%   2008   81.67   17.26   158.70   257.63   31.70%   6.70%   61.60%   100.00%   2009   96.57   21.29   190.67   308.52   31.30%   6.90%   61.80%   100.00%   2010   90.79   29.76   180.09   300.64   30.20%   9.90%   59.90%   100.00%   2011   109.36   41.92   229.78   381.06   28.70%   11.00%   60.30%   100.00%   2012   158.35   57.45   283.73   499.53   31.70%   11.50%   56.80%   100.00%  
  11. 11. 11   Indian  Lust  for  gold   Import  of  Gold  in  India   Year   Rs.  in  crores   Growth  Rate   1999-­‐00   17991   2000-­‐01   18829   4.7%   2001-­‐02   19889   5.6%   2002-­‐03   18608   -­‐6.4%   2003-­‐04   29946   60.9%   2004-­‐05   47348   58.1%   2005-­‐06   47951   1.3%   2006-­‐07   65440   36.5%   2007-­‐08   67330   2.9%   2008-­‐09   95324   41.6%   2009-­‐10   135878   42.5%   2010-­‐11   184742   36.0%   2011-­‐12   269563   45.9%   Cumula)ve  total  of  imports  made  in  last  13  years  makes  it  to  the  tune  of  Rs.   1018839  crores.  If  converted  in  USD  at  current  price  of  USD  (65),  it  becomes   156  billion  USD      
  12. 12. 12   Import  content  of  Oil  and  Gold  are  rising  on  year  to  year  basis  where  as  other   things   remained   stagnant   and   then   declined.   Alarming   trend   for   growth   of   economy.   The   signals   on   India’s   growth   story   (8%   to   9%)   being     wrong   were   evident.       15   19   21   32   46   59   82   97   91   109   158   5   4   7   11   11   15   17   21   30   42   57   36   42   52   76   99   117   159   191   180   230   284   56   64   80   119   157   191   258   309   301   381   500   0   50   100   150   200   250   300   350   400   450   500   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   India’s  Total  Imports   USD  Bn   Oil   Gold   Others  
  13. 13. Indian  Economy     Contributories  to  rise  in  CAD   Three  Factors  influenced  increase   in  CAD     1.   Rising  Oil  import  bill                In  10  years  (2002  to  2012)  rise                  is  10  Dmes                From    15.31  billion  $  to                158.35  billion  $     13  
  14. 14. Indian  Economy     Contributories  to  CAD   Three  things  have  affected  the  CAD     2.  Indian  Lust  for  gold   Ø         In  10  years  (2002  to  2012)  rise  is  12.5  Dmes                      From    4.56  billion  $  to  57.45  billion  $   Ø  CumulaDve   import   bill   for   10   years   is   220.46               billion  $  (  Non  producDve  asset)   Ø  Had  this  not  been  imported    (possibly  hoarded),   India’s  Foreign  Exchange    reserve  would  have   been   about   433   billion   $   against     278.81   billion  as  at          16.8.13  (RBI  Data)         14  
  15. 15. Indian  Economy     Contributories  to  CAD   Three  things  have  affected  the  CAD     3.      Decrease  in  import  of  goods  and  services    other  than  oil  and  gold.        This  has  negaDve  effect  on  economy.       Capital  goods,  payments  for  technology   imports  etc.  are  parts  of  this  import  bill.   These  are  the  drivers  of  growth.           15  
  16. 16. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     External  Factors:   Ø  Assump)on   that   growth   in   India   was   spontaneous   and   self   propelling   proved   wrong.         Ø  It   was   not   that   Indian   economy   which   was   growing   fast   or   beber   than   others   but   US   economy  was  not  doing  well  was  the  reason   that   money   came   to   India   for   beber   returns   from  the  year  2007-­‐08  onwards.       16  
  17. 17. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     External  Factors:   Ø  Money   which   came   to   India   were   mostly   short  term  investments  in  FII’s  –  Debt  and   Equity.     Ø  Long   term   Investment   in   India   –   Foreign   Direct   Investment   (FDI)   has   remained   lower  than  FII’s  invesDng  in  India.         17  
  18. 18. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     External  Factors:   Ø  Once  the  US  Economy  is  giving  signals  of   improvement,  flight  of  money  has  started.   Ø  Rate   of   interest   in   US   has   improved,   so   bonds  of  Indian  market  are  redeemed  and   money  is  going  back  to  other  countries.   Ø  Greater   peril   may   come,   if   European   economy  improves  sooner.     18  
  19. 19. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     Internal  Factors   Ø  Reforms  have  been  ignored.   Ø  Populist   measures   like   subsidies,   grants   took   prime   posiDon   Viz.   Diesel,   FerDlizer,   Food  etc.  –  Burden  to  naDonal  income  as   against   the   investment   in   Infrastructure   and  core  Industries.     19  
  20. 20. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     Internal  Factors   Ø  Investor’s   confidence   has   been   affected   by   retrospecDve   amendments   in   law,   endless   liDgaDons,   corrupDon   stories   (   2G,   Coalgate   etc.)  coupled  with  indecisions.   Ø  State   Vs.   Center   Leadership   and   governance   issues.       Ø  Bable  between  Judiciary  and  polity.   Ø  Trust  in  the  leadership  is  at  low  level.   20  
  21. 21. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     Business  and  Polity  (State)    -­‐  (A)     In   the   maze   of   judicial   acDvism,   government   inacDon  (  or  corrupDon)  industry  and  businesses   in  India  are  suffering  enormously.     1.  Coal-­‐  Inspite  of  having  300  billion  ton  of  coal   reserves,  India  to  pay  about  8  billion  US  $  for   import  of  appx.  82  million  tons  of  coal.  (  Coal   Gate  LiDgaDon)   2.  Natural  Gas:  Court  to  intervene  in  pricing  of   gas.  KG  basin  producing  minimum  gas.     21  (Curtsey:  ArDcle  by  Mr.  Mukul  Rohatgi  TOI  26/8/13)  
  22. 22. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide    Business  and  Polity  (State)  (B)     In   the   maze   of   judicial   acDvism,   government   inacDon   (   or   corrupDon)   industry   and   businesses   in   India   are   suffering   enormously.     3.  NaDonal  Highway:  NHAI  suffers.  Kishangadh-­‐  Udaipur-­‐   Ahmedabad   555   km   highway   held   up   in   liDgaDon.   Environment  clearances  held  up.     4.  TelecommunicaDon:   FDI   for   2012-­‐13   Rs.   1654   crores   but  in  previous  3  years  totaled  Rs.  58782  crores  (  Down   by  82%)  [  2G  LiDgaDon)   5.  Iron  Ore:  India  is  having  one  of  the  largest  resources  of   Iron  Ore.  But  now  is  the  net  importer.         22  (Curtsey:  ArDcle  by  Mr.  Mukul  Rohatgi  TOI  26/8/13)  
  23. 23. Falling  Rupee  and  rising  US  $   Other  factors  which  has  promoted  this  slide     Business  and  Polity  (State)       Ø  In   such   state   of   uncertainty,   which   businessman  would    have  confidence  to  invest   in  new  business  or  to  expand  the  exisDng  one.   Its  in  fact  difficult  to  protect  the  exisDng  one.         Ø  While   the   businesses   are   facing   the   down   cycle,  high  inflaDon  and  pressure  from  foreign   markets,  the  State  has  generated  problems.     Ø  Repeated  /  retrospecDve  amendments  in  law.   Frequent   changes   in   monetary   policies   have   shaken  the  confidence.         23  
  24. 24. Falling  Rupee  and  rising  US  $     Indian  economy  can  be  further  affected  by:     Ø  Business  failures  and  insolvency                  (expected  that  25%  of  corporates  would   be   unable   to   service   the   debts   in   next   one  /  two  years)     Ø  Low  industrial  producDon   Ø  Rising  prices   Ø  Higher  InflaDon       24  
  25. 25. Falling  Rupee  and  rising  US  $   Way  Out  ?   No   short   term   soluDon   is   visible  as  the  flood  gates  are   already  open.       Slow   and   steady   recovery   is   possible.   25  
  26. 26. Falling  Rupee  and  rising  US  $   Way  Out  ?   For  External  factors:   Ø  Confidence   building   is   necessary.   Ø  Change  in  polity  –  State  must   act  posiDvely  and  decisively.     26  
  27. 27. Falling  Rupee  and  rising  US  $   Way  Out  ?   For  External  factors:   Ø  Promises   given   by   the   Government   (whichever   Party)    must  be  fulfilled.   Ø  LiDgaDons  must  end.     27  
  28. 28. Falling  Rupee  and  rising  US  $   Way  Out  ?   For   Common   man   /   Middle   class   /   rich   Indians  :   Ø  Don’t  buy  gold  for  at  least  5  years.   Ø  Reduce  your  petrol  consumpDon  (  at  least   25%).   Travel   in   common   pool   or   public   vehicle   and   avoid   unnecessary   use   of   petrol.   Ø  Use  Indian  goods  as  far  as  possible.   Ø  Work   honestly,   improve   your   moral   standards.     28  
  29. 29. Falling  Rupee  and  rising  US  $   Way  Out  ?   For  Business  /  Industry  :   Ø  Don’t   borrow,   if   you   can’t   pay   back.   (you   decide   and   not   the   lender)   Ø  Try  to  produce  more  with  Indian  inputs.   Ø  Export  the  goods  /  services  as  much  as  possible.   Ø  Import  capital  goods,  technology  and  adopt  it  as  fast  as  possible.   Ø  Don’t  liDgate,  if  you  can  avoid  it.   Ø  Avoid  corrupDon,  moral  and  real;  both.   Ø  Start  new  businesses  (in  India)  in  rural  /  semi  urban  areas.           29  
  30. 30.     PresentaDon  on       Falling  Rupee,  rising  $     and     Common  Man      in  India     Thanks   By   Divyang  Majmudar                                                          Spectra  Management  Consultancy     Chartered  Accountant                                                Pune   Ahmedabad   30  

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