Friday, April 11, 2008

Afraid of the Rising Rupee.

On an earlier post covering the ongoing inflation, I had suggested respite for growing prices in terms of an appreciating rupee.( Read: Krishna Prashanth: Can the Rupee save us?). I received two very strong (but gently voiced)responses against my idea. One from a student studying in the USA and another an exporter of knitwear from Tiruppur.
The former, an old friend studying in Stanford, jokingly complained to me that if the rupee appreciates any further, he stands to lose. He spent valuable Indian rupees on his education in the US two years earlier, buying it at close to 45 Rupees a Dollar, and when its time to earn the money back, the same Dollar fetches him much lesser(around 39 now).
Education has always been considered a very good investment. When one looks at education in the US as an investment oppurtunity, (not just as a haven to get some good learning) he is bound to factor in certain realities. Firstly, education in the US in a good university (like Stanford) will clearly add value for the typical American head hunter. However, if one is studying on a loan from an Indian Bank and needs a salary to repay the same back in India, apart from the interest rates one has to also factor in the effects of the appreciating rupee. The trend of the rupee could be upwards in the coming future (So might be the interest rates). So if you are planning to study in the US (with only the idea of making some good bucks !) you may need to wait and watch the situation a bit.
An appreciating rupee has also seriously hit the textile industry, as this business colleague of mine from Tiruppur complains. Tiruppur, the hosiery capital of India has already suffered enough because of the depreciating rupee. The exports have come down from Rs 11,000 Crores in 2006 to Rs 9,950 Crores in 2007. The situation has worsened because of inflation as the cotton prices have shot up. The situation in Tiruppur is bleak, he complains (Read: Tiruppur Exporters' Miseries)
As I had discussed in the earlier post, the appreciating rupee is not always a friend for all. Mainly the EOUs(Export Oriented units)will suffer. But every challenge might mean an oppurtunity. It is necessary to cash in on the fact, to try and increase the domestic consumption of goods. Time to sell the goods within the country. Remember if you are having export woes, so is China. China's local currency has appreciated even more steeply against the dollar. Time to fight China in our very own backyard -The domestic Market.


Sita said...

Ya if one gets benefit in one way, another may stand to lose. That is the rule of nature.

Currencies of many countries other than India and China are also appreciating. How are they balancing the positive and negative effects of an appreciating currency. Lets be open to learn from all.

Vilayur said...

It’s obvious that the sudden increase in the inflation is surprising and we need to see how our Government is tackling. Another surprising factor is that lesser than a month back decision has been taken to distribute Rs 65000/- crores to farmers to cover up their losses and now the problem is scarcity of food. Does not make sense.