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Last updated: 20 Sep, 2016  

Rupee.9.Thmb.jpg Rupee devaluation

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Bikky Khosla | 20 Sep, 2016

Last week, a television channel reported that the Commerce Ministry might propose devaluation of the Indian Rupee to increase export competitiveness. The report sent shock waves through the markets. In no time, investors pull out funds and the currency fell over a two-week low, and it triggered the RBI to call forex dealers to check on their positions. Later in the day, the "news" was identified as false, with the ministry steeping in with a clarification for damage control, and the rupee escaped further catastrophe. The whole episode is unfortunate.

Is devaluing the rupee a good idea? In India, unlike in China, the government does not control the exchange rate of the currency, and the RBI intervenes only when there is high volatility. So, the question of devaluing the rupee does not make any sense. Also, even if rupee devaluation seems to be good for exports on the surface, we cannot ignore the fact that our exports use a lot of imported content. In addition, our imports bill will rise as we are heavily dependent on imports of oil and defence equipment. Inflation may jump as well. Companies exposed to high foreign debt will suffer. Most importantly, such a step will certainly give a wrong signal to foreign investors.

The commerce minister, while denying the rupee devaluation report, said that the government is currently focusing on helping investment in domestic industries, increasing the share of MSMEs in exports and taking advantage of opportunities arising from stimulus programmes introduced by major economies. She also emphasized on looking at niche segments and expanding to new markets. While these proposals sound good, I think focus should first be on those issue which are long overdue, such as high cost of credit, high transaction cost, inefficient transport infrastructure and lack of innovation, etc.     

Meanwhile, latest official data shows that exports fell marginally by 0.3 percent to $21.15 billion and imports 14 percent to $29.19 billion, resulting in a sharp 38 percent decline in trade deficit to $7.67 billion in August. It seems the export sector is moving towards better days slowly but steadily. It is also encouraging that shipments from a number of labour-intensive sectors -- including handicrafts, gems & jewellery and garments -- rose in the month. However, service exports, as shown by last week RBI data, fell by 4.6 percent to $12.78 billion in July.  

I invite your opinions.

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Rupee devaluation
Anil Chandhok | Wed Sep 21 07:37:27 2016
Rupee devaluation will hurt consumers. Consumers have a right to the best quality and range of goods that they can afford. By devaluation, the imported goods will become dearer, more so because import duty has not been reduced for a very long time, even though the Rupee has depreciated in value over the past few years. It is a pity that whereas Trade organisations can impact government policies, the consumers have no voice. Devaluation of Rupee is a bad idea.

Rupee Devaluation
ANIL KAUL | Wed Sep 21 05:34:31 2016
I agree that in the context of Indian economy devaluation is not a very effective way to encourage export,especially in the long term. At the same time working on cost of credit, high transaction cost, inefficient transport infrastructure and innovation is a long term path for providing right kind of facilities to boost export , thus will take lot of time. The need of the hour is to introduce short term incentive schemes till the time all above facilities are made available in the country.

Views on devaluation
A V Chandran | Wed Sep 21 05:27:23 2016
It is absolutely a negative culture for a great country like India having application of both micro and macro economy subject to precise safeguard measures. The Currency Exchange itself is maintaining negative culture since the close of World War II whereas it could be reviewed like the following culture: Ensure World One Currency (WOC) is got proposed and implemented through UN and Non-UN platform so that Currency Exchange and Currency Market could be abolished once for all. Here it may be noted that value of currency is not at all variable in terms of economic concept whereas value of material is variable. Further it may be noted that with the very WOC implementation, currency domination and currency market could be abolished once for all and it will help a smooth passage to whole world as far as macro economy is concerned. In terms of Economic Concept Currency stands firm whereas application of cost of material stands variable. Similarly value of share is not at all variable whereas its quantum, inputs, outputs and yields are variable. If it is applied on both micro and macro terms sound economy in the whole world could be performed subject to continuous developments. If we deeply assess this nature of variation it will be contributing direct repercussions in the whole world. Am I right?

Agree with your views
Udoye | Wed Sep 21 05:06:41 2016
Hello Bikky, I agree with your views. Rupee devaluation is not a tool for exports growth. The way to promote exports is to encourage MSME sector to invest in latest technologies which are efficient & where optimum utilisation of available resources is guaranteed.

Should be heavily punished
VIJAYAN NAIR | Wed Sep 21 04:45:00 2016
Whoever is the TV channel made such false reports should be heavily punished for such rumour mongering, so that in future other tv channels also not even think of making such false reports.

Against rupee devaluation
T . Vijayaraghavan | Wed Sep 21 03:40:07 2016
I am against rupees devaluation to support exports. I had also expressed my opinion earlier in this forum. We are net importers. Our exports are very minuscule when compared to our imports. We need imported equipments to enable us to modernise and become cost competitive for export. So by devaluation this will increase our costs. The rupee must be made stronger. For the exporters sops can be given , after making the rupee stronger, like power cost subsidy, interest and tax rebates wherever extra possible etc etc.

No rupee devaluation
Kunnakkattu J | Wed Sep 21 03:32:43 2016
It's a wrong idea if it is in the mind of any economists. If we compare it for China, one should understand that in China and Japan productivity is higher than India, it is a cultural difference. Secondly, inflation rate is higher in India. 

Rupee strength
C.K.Sundaram | Wed Sep 21 02:17:42 2016
We all say that our economy is growing the highest and India is best place to invest. But in that case why the rupee does not become strong like all other developed countries. Our currency is like a piece of paper and only if it becomes strong we can compare with leading countries.

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