Académique Documents
Professionnel Documents
Culture Documents
Sr. Content Pg No
No
Preface
Acknowledgement
1. Introduction 5
On Public
On Businesses
7. Measures 18
8. Conclusion 20
9. Appendix 22
10. Bibliography 24
INTRODUCTION:
INDIAN RUPEE has been depreciating against U.S Dollar, but the
year 2013 has seen its maximum depreciation. The Indian rupee
touched a lifetime low of 68.978 against the US dollar on August 28,
2013. The rupee plunged by 3.7 percent on the day in its biggest
single-day percentage fall in more than two decades. Since January
2013, the rupee has lost more than 20 percent of its value, the
biggest loser among the Asian currencies.
Exchange rate is the price of foreign currency (USD, Yen, Euro, Pound etc)
in terms of domestic currency (rupee) i.e. amount of domestic currency
needed to buy one unit of foreign currency.
If price of 1$ = ` 53.74, which means 1$ can be purchased in exchange of
` 54. Exchange rate tells us the value of domestic currency in relation to
one unit of foreign currency. 1$ is worth ` 53.74.
When India got freedom on August 15, 1947, the value of the rupee was on
a par with the American dollar. There were no foreign borrowings on India's
balance sheet.
The rupee's link with the British currency was broken in 1971 and it was
linked directly to the US dollar.
In 1975, value of the Indian rupee was pegged at 8.39 against a dollar.
In 1991, India faced a serious balance of payment crisis and was forced to
sharply devalue its currency. The country was in the grip of high inflation,
low growth and the foreign reserves were not even worth to meet three
weeks of imports. Under these situations, the currency was devalued to
17.90 against a dollar.
1993 was very important. This year currency was let free to flow with the
market sentiments. The exchange rate was freed to be determined by the
market, with provisions of intervention by the central bank under the
situation of extreme volatility. This year, the currency was devalued to
31.37 against a dollar. The rupee traded in the range of 40-50 between
2000 and 2010.
The Indian currency has gradually depreciated since the global 2008
economic crisis.
The USD INR history summary. This is the US Dollar (USD) to Indian Rupee
(INR) exchange rate history summary page, detailing 180 days of USD INR
historical data from Thursday 21/03/2013 to Saturday 14/09/2013
Highest: 68.978 INR on 28 Aug 2013.
Demand for a country’s currency comes from its export of goods and
services and foreign investment in the country.
Supply for a country’s currency comes from its imports of goods and
services and its investments in other countries.
Higher Inflation
All over the world, the price of oil is given in dollars. This implies
that as and when the demand for oil increases in India or there is an
increase in oil prices in the global market, there also arises a need for
more dollars to pay the suppliers. This also results in a situation
where the worth of the INR decreases significantly in comparison to
the dollar.
Lack of reforms:
Key policy reforms like Direct Tax Code (DTC) and Goods and
Service Tax (GST) have been in the pipe line for years. A retrospective
tax law (GAAR) has already earned a lot of flak from the business
community. Attempts are being made to control the subsidy bills but
fiscal deficit continues to hover around 5% of GDP. The government
announced FDI in retail but had to hold back amidst huge furore
from both opposition and allies. This has further made investors
sentiment negative over the Indian economy.
A depreciation of the local currency results in higher import costs for the
country. Failure of a similar rise being experienced in the prices of exportable
commodities is going to result in a widening of current account deficit of the
country.
B. Higher Inflation
The central government fiscal burden might increase as the hike in the prices
of imported crude oil and fertilizer might warrant for a higher subsidy provision
to be made for these commodities.
Impact on Public
•Imported goods: Buying imported stuff will become a very costly affair. You
will have to shell out extra on imported goods.
•Fuel price: A weak rupee will increase the burden of Oil Marketing
Companies (OMCs) and this will surely be passed on to the consumers as the
companies are allowed to do so following deregulation of petrol and partial
deregulation of diesel.
•Students studying abroad: Students who are studying abroad will bear the
brunt most owing to depreciating rupee.
•Country’s fiscal health: A frail rupee will add fuel to the rising import bill of
the country and thereby increasing its current account deficit (CAD). A
widening CAD is bound to pose a threat to the growth of overall economy.
Transported Goods: Take, for example, crude oil. A weak rupee will lead to
higher import prices. Since petrol is fully and diesel partially decontrolled, oil
marketing companies such as IOC and BPCL are free to hike their retail prices
in tandem with the import-linked prices. Once the prices of both fuels
increase progressively at the filling stations, it is followed by a cascading
impact that is manifested in the form of an increase in transportation costs,
leading to higher prices of goods that are transported from one part of the
country to another, such as food, consumer durables and fast-moving
consumer goods.
Impact on Business:
• The fast depreciating rupee has hit hard Indian auto companies raising
sharply import costs in a market which is already under pressure from a
continuous slide in vehicle sales over the last seven months.
• Consumer companies are also hit by the deprecating rupee due to their
dependence on imported and crude oil linked raw materials
• While the recent rupee depreciation against dollar may have brought some
cheer for yarn exporters, the industry players are pushing for export orders to
make the most of the situation. This depreciation may prove beneficial to
Indian IT companies and other exporters. But this benefit depends on global
demand and several other factors also. While this declining value may turn
beneficial for exporters but this is surely is putting a pressure on imports and
consumers.
Articles under impacts
SOURCE: http://www.dnaindia.com/money/1876847/report-falling-rupee-has-
little-impact-on-indian-tourists
MEASURES
1. Measures by RBI:
a. Using Forex Reserves: RBI can sell forex reserves and buy Indian Rupees
leading to demand for rupee. But using forex reserves poses risk also, as using
them up in large quantities to prevent depreciation may result in a
deterioration of confidence in the economy's ability to meet even its short-
term external obligations. And not using reserves to prevent currency
depreciation poses the risk that the exchange rate will spiral out of control.
Since both outcomes are undesirable, the appropriate policy response is to
find a balance.
c. Make Investments Attractive: Easing Capital Controls: RBI can take steps to
increase the supply of foreign currency by expanding market participation to
support Rupee. RBI can increase the FII limit on investment in government and
corporate debt instruments. It can invite long term FDI debt funds in
infrastructure sector. The ceiling for External Commercial Borrowings can be
enhanced to allow more ECB borrowings.
2. Measures by Government: Government should take some
measures to bring FDI and create a healthy environment for
economic growth. Key policy reforms that should be initiated
includes rolling of Goods and Services Tax (GST), Direct Tax Code
(DTC), FDI in aviation and retail, Companies Bill and diesel decontrol.
Efforts should be made to invite FDI but much more needs to be
done especially after the holdback of retail FDI and recent criticisms
of policy paralysis. The government took steps recently to loosen
rules for portfolio investment in the Indian market, indicating its
desire to sustain external inflows. The measure to increase External
Commercial Borrowings (ECB) to $10bn will help in borrowing in
dollar at a less cost. It may take similar steps to encourage FDI as
well, helping sustain external funding.
CONCLUSION
We can’t predict where the rupee will eventually land and I don’t think anyone
else can either.
Of course, we are not the only country at the mercy of the dollar because
almost every emerging market is suffering. But surely, that shouldn’t be any
consolation.
Sadly, we can’t say we did not see it coming. The RBI has been pointing to the
twin deficits – fiscal and trade – for long while waging a losing battle on the
monetary front. The International Monetary Fund (IMF) pointed out early this
year that our fiscal deficit and inflation were among the highest in emerging
markets. Our dependence on hot FII portfolio money was always there for all
to see.
Our government, the markets and the rupee hid behind a huge wall of liquidity
in the global markets. Looking back, it almost seems as though the RBI
commenced its interest reduction cycle a bit too early and the outgoing
governor did not wish to leave without correcting what he may believe was an
error in policy judgment.
Also, we should open up incoming FDI for all sectors, except those
considered sensitive to national interests. Especially for infrastructure, capital-
intensive and environmentally safe projects.
While NREGA and food security can be justified, inflation led by fiscal
deficit has to be controlled by eliminating indirect subsidies and freeing up
agricultural trade. To revive the rupee, we need to rein in the twin deficits. At
the same time, painful as it may seem, we need to hold on to interest rates at
a ‘real’ level to encourage household savings.
Rupee has been continuing with its downward trend since a couple of weeks.
Moving from bad to worse, The Finance Ministry, however, believes that the
‘unwarranted panic’ in the market will settle down in some time. Chief
economic adviser Raghuram Rajan, too, is of the opinion that weakness in
rupee could be a temporary phenomenon.
INDIAN RUPEE has been depreciating against U.S Dollar, but the year 2013 has
seen its maximum depreciation.The Indian rupee touched a lifetime low of
68.85 against the US dollar on August 28, 2013. The rupee plunged by 3.7
percent on the day in its biggest single-day percentage fall in more than two
decades. Since January 2013, the rupee has lost more than 20 percent of its
value, the biggest loser among the Asian currencies.
CAUSES
Higher Inflation
All over the world, the price of oil is given in dollars. This implies that
as and when the demand for oil increases in India or there is an
increase in oil prices in the global market, there also arises a need for
more dollars to pay the suppliers. This also results in a situation
where the worth of the INR decreases significantly in comparison to
the dollar.
The equity markets in India have been volatile for a certain period of
time. This has put the FIIs into a dilemma as to whether they should
be investing in India or not. In recent times their investments have
touched an unprecedented level and so if they pull out then the
inflow will go down as well. Exchange rate risk also drives away
foreign investors which in turn depreciates the local currency.
RBI can sell forex reserves and buy Indian Rupee leading to demand
for rupee. But using forex reserves poses risk also, as using them up
in large quantities to prevent depreciation may result in a
deterioration of confidence in the economy's ability to meet even its
short-term external obligations.
Lack of reforms:
Key policy reforms like Direct Tax Code (DTC) and Goods and Service
Tax (GST) have been in the pipe line for years. A retrospective tax law
(GAAR) has already earned a lot of flak from the business
community. Attempts are being made to control the subsidy bills but
fiscal deficit continues to hover around 5% of GDP. The government
announced FDI in retail but had to hold back amidst huge furore
from both opposition and allies. This has further made investors
sentiment negative over the Indian economy.
IMPACTS
Primarily the consequences of weak rupee are to be felt
through:
A. Increase in the Import Bill
A depreciation of the local currency results in higher import costs for the
country. Failure of a similar rise being experienced in the prices of exportable
commodities is going to result in a widening of current account deficit of the
country.
B. Higher Inflation
C. Fiscal Slippage
The central government fiscal burden might increase as the hike in the prices
of imported crude oil and fertilizer might warrant for a higher subsidy provision
to be made for these commodities.
Fertilizer
Thermal Coal
Vegetable Oil
Crude Oil
The Indian rupee is under great stress as overseas investors are paring their
exposure to Asia’s third-largest economy amid international uncertainty
and mounting worries over the domestic economy.
Rupee appreciation makes imports cheaper and exports more expensive.
According to intelligence reports by the Associated Chambers of Commerce
and Industry of India, sectors like petroleum and petroleum products, drugs
and pharmaceuticals and engineering goods – which have import inputs of
as much as 77 percent, 19 percent and 21 percent, respectively – will gain if
the rupee appreciates. They would have to pay less for the imported raw
materials which would increase their profit margins.
Likewise, a depreciating rupee makes exports cheaper and imports
expensive. So, it is good news for industries such as IT, textiles, hotels and
tourism which generate income mainly from exporting their products or
services. Rupee depreciation makes Indian goods and services cheaper for
overseas buyers, thus leading to increases in demand and higher revenue
generation. The foreign tourists would find it cost effective to come to
India, therefore increasing the business of hotel, tours and travel
companies.
India’s IT sector is dependent on foreign clients, especially the United
States, for more than 70 percent of its revenue. When an IT company gets a
project from a client, it pre-decides on the length of the contract and the
cost of the project. The contracts with U.S. clients are usually quoted in U.S.
dollar terms. So, the fluctuation in the exchange rate can bring about a
considerable difference in the performance of a company.
Some companies undertake a range of measures like hedging exchange
risks using forwards and futures contracts. This helps in mitigating some of
the losses due to exchange rate fluctuations, but none-the-less the impact
is substantial.
The exchange rate is a significant tool that can be used to examine many
key industries; with fluctuations potentially having a serious impact on the
economy, industries, companies, and foreign investors. Rupee appreciation
is generally helpful for industries which rely closely on imported inputs
while depreciation of the rupee is welcome news for industries which are
exporting a majority of their products.
•Fuel price: A weak rupee will increase the burden of Oil Marketing
Companies (OMCs) and this will surely be passed on to the consumers as the
companies are allowed to do so following deregulation of petrol and partial
deregulation of diesel.
•Students studying abroad: Students who are studying abroad will bear the
brunt most owing to depreciating rupee.
•Country’s fiscal health: A frail rupee will add fuel to the rising import bill of
the country and thereby increasing its current account deficit (CAD). A
widening CAD is bound to pose a threat to the growth of overall economy.
IMPACT ON BUSINESS :
•The fast depreciating rupee has hit hard Indian auto companies raising sharply
import costs in a market which is already under pressure from a continuous
slide in vehicle sales over the last seven months.
•Consumer companies are also hit by the deprecating rupee due to their
dependence on imported and crude oil linked raw materials
•While the recent rupee depreciation against dollar may have brought some
cheer for yarn exporters, the industry players are pushing for export orders to
make the most of the situation. This depreciation may prove beneficial to
Indian IT companies and other exporters. But this benefit depends on global
demand and several other factors also. While this declining value may turn
beneficial for exporters but this is surely is putting a pressure on imports and
consumers.
Articles under impacts
SOURCE: http://www.dnaindia.com/money/1876847/report-falling-rupee-has-little-impact-
on-indian-tourists
MEASURES
1. Measures By RBI:
a. Using Forex Reserves: RBI can sell forex reserves and buy Indian Rupees
leading to demand for rupee. But using forex reserves poses risk also, as using
them up in large quantities to prevent depreciation may result in a
deterioration of confidence in the economy's ability to meet even its short-
term external obligations. And not using reserves to prevent currency
depreciation poses the risk that the exchange rate will spiral out of control.
Since both outcomes are undesirable, the appropriate policy response is to
find a balance. Recent data shows that RBI had indeed intervened by selling
forex reserves selectively to support Rupee.
b. Raising Interest Rates: The rationale is to prevent sudden capital outflows
and ultimately lead to higher capital inflows. But India’s interest rates are
already higher than most countries. This was done to tame inflationary
expectations. So further raising interest rates would lead to lower growth
levels.
c. Make Investments Attractive- Easing Capital Controls: RBI can take steps to
increase the supply of foreign currency by expanding market participation to
support Rupee. RBI can increase the FII limit on investment in government and
corporate debt instruments. It can invite long term FDI debt funds in
infrastructure sector. The ceiling for External Commercial Borrowings can be
enhanced to allow more ECB borrowings.
By RAJAN GHOTGALKAR
I can‟t predict where the rupee will eventually land and I don‟t think
anyone else can either.
Of course, we are not the only country at the mercy of the dollar
because almost every emerging market is suffering. But surely, that
shouldn‟t be any consolation.
The dollar seems to be flexing its muscle and violently at that. The U.S.
Fed minutes did not soothe jangled nerves and markets continue to
expect that QE3 tapering will commence in September. The U.S. trade
deficit seems far healthier than a year ago and the country‟s economy is
in better shape. QE3 tapering is a foregone conclusion. But when it does
hit us, I expect a lot more pain.
Sadly, we can‟t say we did not see it coming. The RBI has been pointing
to the twin deficits – fiscal and trade – for long while waging a losing
battle on the monetary front. The International Monetary Fund (IMF)
pointed out early this year that our fiscal deficit and inflation were among
the highest in emerging markets. Our dependence on hot FII portfolio
money was always there for all to see.
Our government, the markets and the rupee hid behind a huge wall of
liquidity in the global markets. Looking back, it almost seems as though
the RBI commenced its interest reduction cycle a bit too early and the
outgoing governor did not wish to leave without correcting what he may
believe was an error in policy judgment.
The root of the problem lies in the consistently negative rate of interest
imposed on savers. An open economy has its own ways of correcting
artificial imbalances created by its policymakers. Negative real interest
rates will almost always break out into currency depreciation. When this
happens, no amount of intervention can help till the currency finds its
right level.
Holding on to negative real interest rates for a long time has driven
household savers into non-financial assets – in India, that means gold.
To begin with, there needs to be a true gold alternative. In the past few
years, gold ETFs and loans added to its liquidity. Banks and PSUs
pushed gold coins to cash in on the craze. Buying gold in India is as
easy as buying a bar of chocolate.
It‟s time to also go back grovelling to the NRIs hoping that they will
return for the premiums over international dollar interest rates.
Also, shouldn‟t we open up incoming FDI for all sectors, except those
considered sensitive to national interests? Especially for infrastructure,
capital-intensive and environmentally safe projects. One would rather
approve outgoing FDI on a case-by- case basis ensuring that, like in the
case of China, they are in national strategic interest.
utopian.
The other day, a friend told me that “it was easier to import than
transport” in India and there lies the real solution in the long run. Our
manufacturing sector has to grow aggressively and has to be provided
with enabling infrastructure. India needs to promote its own economic
union with the goods and services tax. We spend an estimated $25
billion on defence imports; after 60 years we surely can do something to
substitute this.
While NREGA and food security can be justified, inflation led by fiscal
deficit has to be controlled by eliminating indirect subsidies and freeing
up agricultural trade. To revive the rupee, we need to rein in the twin
deficits. At the same time, painful as it may seem, we need to hold on to
interest rates at a „real‟ level to encourage household savings.
SOURCE: http://blogs.reuters.com/india-expertzone/2013/08/23/how-to-
rescue-the-falling-rupee/
1947-1948 British owned private foreign capital-Swadeshi movement & Industrial policy resolution
1949-1953 Trio of Domestic business houses, foreign capital and the government-nationalist sentiments in policies kept
away foreign investment 1957-Second Economic Plan, launched “Industrialization though import substitution” encouraged
private investment 1960s-Selective industries got foreign collaboration and JV mostly manufacturing –Indian participation
retained After 1960s-Devaluation of Rupee encouraged socialist idealism banks and foreign oil majors nationalized 1968
introduction of Foreign investment board –encouraging investments on own terms and conditions FDI History in India
10. 1973-Foreign Exchange Regulation Act (FERA) new clause introduced “all firms dilute their foreign equity holdings to
40% to be treated as Indian companies” exit of IBM, Coca Cola 1980s-restrictive licensing procedures softened, technology
transfer and royalty payments relaxed, wherever possible foreign investment was encouraged 1990s-Rupee devalued, NRI
money withdrew, India turned to IMF, Trade regime and regulatory frame work was liberalized, FDI invited in wide range of
industry, limit was increased from 51% to 100% in some cases, service sector reopened for FDI, FIIs also encouraged After
1995-Political instability but perception towards FDI changed, changing government kept focus on FDI
Key Statistics
Foreign direct investment in India has increased by about 35 percent to USD 13.6 billion
during the first half of 2013 with merger and acquisitions accounting for the bulk of inflows,
says an UNCTAD report.
Foreign Direct Investment (FDI) into India declined to 8-month low of USD 1.4 billion in
August, down 38 percent year-on-year.
In August 2012, the country had attracted foreign investment worth USD 2.26 billion.
During the April-August period of 2013-14 fiscal, FDI has grown by a meagre 4 percent to
USD 8.46 billion, from USD 8.16 billion in the first five months of 2012-13
India Inc witnessed a year-on-year (y-o-y) upsurge of 24.2 per cent in FDI to touch US$ 3.95
billion in April-May 2013 as against US$ 3.18 billion during the same period in 2012,
according to statistics released by the Department of Industrial Policy and Promotion (DIPP).
During 2012-13, India attracted FDI worth US$ 22.42 billion. Hotels and tourism,
pharmaceuticals, services, chemicals and construction received the highest amount of FDI.
The major contributors to the Indian FDI were Singapore, Mauritius, the Netherlands and the
US.
The Government of India has liberalised the FDI regime in about a dozen sectors, including
telecom, power etc and have also relaxed investment norms in multi-brand retailing.
Private equity (PE) and venture capital (VC) firms remained bullish about India‟s consumer
goods and services sector. PE and VC investments increased by more than 46 per cent in the
first half of FY14, with consumer companies in retail, e-commerce, consumer packaged
goods and quick service restaurants raising US$ 609.39 million through 51 deals.
Meanwhile, Indian merger and acquisition (M&A) space witnessed substantial levels of deal
activity in the first nine months of 2013. There happened 377 deals amounting to US$ 23.9
billion, according to a survey by tax advisory firm Grant Thornton.
India's foreign exchange (forex) reserves increased by US$ 1.51 billion to touch US$ 279.24
billion for the week ended October 11, 2013, showed the data from the Resrve Bank of India
(RBI)‟s Weekly Statistical Supplement. India's foreign currency assets (FCA), the biggest
component of the forex reserves, increased by US$ 1.52 billion to US$ 250.85 billion for the
week under review.
Important Developments
SCA, the Swedish company that deals in hygiene and forest products, will be setting up a
manufacturing plant in India with an investment of about Rs 145 crore (US$ 23.66 million).
The plant is expected to be operational by 2015. The global major has been attracted by
India‟s large population and low penetration of hygiene products that could provide a major
impetus to its growth plans.
DIPP is learnt to have granted approval to Hennes & Mauritz AB‟s Rs 700-crore (US$ 114.24
million) investment proposal for the single-brand retail market. The proposal by the Swedish
clothing giant will move to the Foreign Investment Promotion Board (FIPB) for its nod.
This is second such proposal from Sweden and also the second largest. The Cabinet
Committee on Economic Affairs (CCEA) had cleared furniture-maker Ikea‟s Rs.10, 500 crore
(US$ 1.71 billion) earlier in 2013.
Meanwhile, UK-based bank Williams & Glyn‟s, which is a part of the Royal Bank of Scotland
Group, has inked Rs 2, 535 crore (US$ 413.71 million) deal with IBM and Infosys wherein the
Indian IT majors will build a new technology system for Williams & Glyn‟s
At the time of independence, the attitude towards foreign capital was one of fear and
suspicion. This was natural on account of the previous exploitative role played by it in
„draining away‟ resources from this country.
The suspicion and hostility found expression in the Industrial Policy of 1948 which, though
recognizing the role of private foreign investment in the country, emphasized that its
regulation was necessary in the national interest. Because of this attitude expressed in the
1948 resolution, foreign capitalists got dissatisfied and as a result, the flow of imports of
ca[ital goods got obstructed. As a result, the prime minister had to give following assurances
to the foreign capitalists in 1949:
1. No discrimination between foreign and Indian capital. The government o India will not
differentiate between the foreign and Indian capital. The implication was that the government
would not place any restrictions or impose any conditions on foreign enterprise which were
not applicable to similar Indian enterprises.
2. Full opportunities to earn profits. The foreign interests operating in India would be
permitted to earn profits without subjecting them to undue controls. Only such restrictions
would be imposed which also apply to the Indian enterprises.
Though the Prime Minister stated that the major interest in ownership and effective control of
an undertaking should be in Indian hands, he gave assurance that there would be “no hard and
fast rule in this matter.”
By a declaration issued on June 2, 1950, the government assured the foreign capitalists that
they can remit the he foreign investments made by them in the country after January 1, 1950.
in addition, they were also allowed to remit whatever investment of profit and taken place.
Despite the above assurances, foreign capital in the requisite quantity did now flow into India
during the period of the First plan. The atmosphere of suspicion had not changed
substantially. However, the policy statement of the Prime Minister issued in 1949 and
continued practically unchanged in the 1956 Industrial Policy Resolution, had opened up
immense fields to foreign participation. In addition, the trends towards liberalization grew
slowly and gradually more strong and the role of foreign investment grew more and more
important.
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SOURCE: http://blogs.reuters.com/india-expertzone/2013/08/23/how-to-
rescue-the-falling-rupee/