These days, when we surf in T.V. channels, zapping one channel to another, we find news flashing; rupee hitting new low, rupee down in early trade, rupee free fall to raise crude prices, rupee to slip further. Many questions arises in layman’s mind…….why is rupee depreciating? Are we going into recession? How are we affected by rupee fall?
This presentation provides an overview of how the currency movement is determined? What path rupee had followed since 1991? What is the current scenario of rupee v/s dollar? What are the reasons behind depreciation of rupee? What is the impact of rupee depreciation; the losers and the gainers, RBI’s corrective role and why it has failed and last but not the least the suggestions to improve.
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Retiring rupee
1. Dr. Akansha Jain
email:
dr.akanshajain@gmai
l.com blog –
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ogspot.in 1
2. Retiring Rupee
Presentation by-
Dr. Akansha Jain
Department of Management
Studies
DGI, Greater Noida
Dr. Akansha Jain email: dr.akanshajain@gmail.com blog
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3. 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
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4. 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
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5. Rupee Movement Since 1991
Source: RBI
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6. Dr. Akansha Jain email: dr.akanshajain@gmail.com blog – http://drakanshajain.blogspot.in 6
8. 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)
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9. 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%).
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10. Reasons for Rupee
Depreciation
Growing European debt crisis fueled global risk
aversion weak domestic fundamentals coupled
with policy paralysis aided sharp rupee
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11. WHY???????????????
??????????????
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12. •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
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13. • 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).
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14. 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.
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15. 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.
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16. 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
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17. RBI corrective role
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18. 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
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19. 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
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20. What can we do as
individual………..
Be Indian Buy Indian
Return of NRI to Own Country
Stop to Import All Zero Technology
Products
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