The Rupee is Becoming a Strong Currency

April 26, 2007 - PRLog -- The Indian rupee is becoming stronger by the year, if not by the day or week or month in view of fluctuations in its value against world currencies for several reasons. The Reserve Bank of India and the Government would not like it to be valued higher too soon for their own reasons. What in God's name are these so- called reasons? The Government policies are unfathomable to most citizens. But the simple unannounced logic might be that they would not like Incredible India to become too dear for the rest of the world. They would like it to be an attractive destination for investment, business, industry and tourism. They would like the corporate as well as the fun loving visitor to be able to get plenty of rupees for his currency whatever it is called, wherever it is minted or printed or delivered to the seller of goods and services by the plastic or credit card.
   
In a little more than three years, an Indian used to need 51 rupees to buy an American dollar, almost Rs 60 to get a Euro and nearly Rs.90 to buy a British pound sterling. The US dollar is down to Rs.42, the pound is Rs.84 worth and the Euro almost Rs. 56. Against the American dollar, which is still the largest and the most popular measure, the gain for the rupee has been Rs. 9, almost 14 per cent in 40 months. It is less in the case of other world currencies. It appears to be almost certain that within the year 2007, the rupee will have become two rupees dearer for the dollar. That would mean about 20 per cent appreciation of the rupee value in four years or less.

But if present trends continue the rupee could gain in value by five to seven per cent a year. By the year 2010, it would be reasonable to believe that a dollar will fetch only Rs.35, if not 30. A further change in value by another ten rupees would push up the currency value by 25 per cent. It would appear to be incredible at this point of time, but was anyone prepared for a dollar being available for Rs.40. No. But it is about to happen. Why is this so? After years of growth, there is a slight, imperceptible decline in theUS. It is far from recession, but the buoyancy is missing, thanks to high rates of interest and high level of inflation.

There are other factors. The simple reason is that oil cartel members have been shifting their foreign currency reserves to Europe from the US to hedge their bets. They do not wish to keep all their eggs in the dollar basket, where the eggs could break and, for sure, their own value is being eroded. Today the Euro accounts for the largest single currency reserve and has unseated the American dollar from its top position.

China, which has a trillion dollars stacked up in the US, may not yet be shifting its reserves to Europe or elsewhere, but who knows if it will not set the limit at $1 trillion and start piling up new earnings elsewhere. China badly needs the US market, still the largest in the world, and may not wish to weaken it for its own good.

The Indian exporters, including those engaged in services like backroom offices, call centers and those providing software and high technology are a worried lot because their income has gone down by 15 to 18 per cent even if they have been billing their overseas customers five to ten per cent more year after year in keeping with international practices. To compensate them for their losses, genuine or not so genuine, or fears of losses, the Government has come up with a please all import and export policy, which promises a 25 per cent growth in exports year upon year. The exporters will be compensated handsomely. The Special Economic Zones, 60 of them already functional, and exporters elsewhere will escape service tax, which is 12 per cent in the value of goods. Duty entitlement or refunds has been extended by a year. Banks have been asked to give concessional or cheaper loans to exporters, that is at lower rates of interest, lower than their market rates. Thus the exporters should not be complaining. Imported inputs will in any case be cheaper as they will require fewer rupees.

Yet in this picture of a veritable boom, there is underlying gloom as inflation in India is relentless. It cannot be measured in wholesale price indexes, which are a jugglery of sorts and unrelated to what the common man or aam adami pays for his basic needs. Everything is dearer by the day. The banks are making merry with high interest rates. They are limiting depositors with five withdrawals from an automatic teller machine or ATM in a month and fewer cheques to be issued in a month. Some smart banks will levy smart penalties for extra use of their facilities and heavy charges for bounced cheques. Even the nationalized banks will be less friendly and will raise service charges all around under orders of the Finance Minister. He is trying to curb the 30 per cent growth in personal loans and is making it even dearer to borrow from the banks.

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