Port Wings, 19 September 2018:
Indian rupee is creating history of sorts of late. For the first time in recent times, it has breached 70 per USD and comfortably marching towards reaching the 80 Rs mark, most probably within another six months.
The rupee has been steadily falling throughout 2018 after starting the year at 63.67.The weaker rupee will help India sell goods and its huge services sector in overseas markets, but the country is a massive importer of oil, securing more than two-thirds of its needs from abroad.
If we deem the falling rupee as double-edged-sword, it will not only affect the trade here, but also shake the very foundation of country’s economic prosperity.
There should not be any optimism that the falling-rupee would assist exporters and it will help them to exports goods in cheaper rate compared to nearest rivals. Federation of Indian Export Organizations (FIEO) has literally warned the government that the sliding, if not arrested on time, will lead to severe problems for the whole economy.
South Africa, Argentina, Mexico, Brazil and Russia have all seen their currencies slip over the past week because, like Turkey, they remain heavily dependent on dollar-dominated foreign capital.
India’s IT, services and leather exporters may benefit from a weaker rupee — but so do its competitors from their falling currencies.
FIEO says they will lose the competitive edge to these economies and profitability from exports will also come down. Analysts say high crude prices are squeezing the Indian currency, making it less appealing to investors.
If go by the FIEO’s latest advise, the government should focus primarily on boosting exports to check the widening current account deficit as imposing curbs on imports may not have a significant impact.
Understanding the impact off the sliding, the government has announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for foreign portfolio investments, and curbs on non-essential imports, to contain the widening CAD and check the rupee depreciation. Furthermore, requests are coming from the trade that the government should immediately ease liquidity for exporters.
Meanwhile, Prime Minister Modi was briefed by Reserve Bank of India governor Urjit Patel and finance ministry officials. After the briefing, Finance Minister Arun Jaitley announced that government has taked few decisions aimed at checking the current account deficit (CAD) and increasing foreign exchange inflows.
Jaitley also said that the items on which import restrictions would be imposed will be finalised in consultation with stakeholder ministries and departments to ensure they are in sync with WTO norms.
Whatever be said and done, until unless the rupee sliding is stopped as soon as possible, Indian economy will be put into great trouble. And, the government must know that 2019 is election year and any misadventure will be dealt by voters very seriously.