2.

3 Critically analyze some macro-economic factors which may affect the currency
behavior in the future.
1. Inflation Rates

Changes in market inflation cause changes in currency exchange rates. A country with a lower
inflation rate than another's will see an appreciation in the value of its currency. The prices of
goods and services increase at a slower rate where the inflation is low. A country with a
consistently lower inflation rate results a rising currency value while a country with higher
inflation typically sees depreciation in its currency and is usually accompanied by higher interest
rates.

2. Interest Rates

Changes in interest rate affect currency value and dollar exchange rate. Forex rates, interest
rates, and inflation are all correlated. Increases in interest rates cause a country's currency to
appreciate because higher interest rates provide higher rates to lenders, thereby attracting more
foreign capital, which causes a rise in exchange rates.

3. Country’s Current Account / Balance of Payments

A country’s current account reflects balance of trade and earnings on foreign investment. It
consists of total number of transactions including its exports, imports, debt, etc. A deficit in
current account due to spending more of its currency on importing products than it is earning
through sale of exports causes depreciation. Balance of payments fluctuates exchange rate of its
domestic currency.

4. Government Debt

Government debt is public debt or national debt owned by the central government. A country
with government debt is less likely to acquire foreign capital, leading to inflation. Foreign
investors will sell their bonds in the open market if the market predicts government debt within
a certain country. As a result, a decrease in the value of its exchange rate will follow.
5. Terms of Trade

Related to current accounts and balance of payments, the terms of trade is the ratio of export
prices to import prices. A country's terms of trade improves if its exports prices rise at a greater
rate than its imports prices. This results in higher revenue, which causes a higher demand for the
country's currency and an increase in its currency's value. This results in an appreciation of
exchange rate.

6. Political Stability & Performance

A country's political state and economic performance can affect its currency strength. A country
with less risk for political turmoil is more attractive to foreign investors, as a result, drawing
investment away from other countries with more political and economic stability. Increase in
foreign capital, in turn, leads to an appreciation in the value of its domestic currency. A country
with sound financial and trade policy does not give any room for uncertainty in value of its
currency. But, a country prone to political confusions may see a depreciation in exchange rates.

7. Recession

When a country experiences a recession, its interest rates are likely to fall, decreasing its chances
to acquire foreign capital. As a result, its currency weakens in comparison to that of other
countries, therefore lowering the exchange rate.

8. Speculation

If a country's currency value is expected to rise, investors will demand more of that currency in
order to make a profit in the near future. As a result, the value of the currency will rise due to the
increase in demand. With this increase in currency value comes a rise in the exchange rate as
well.

9. Change in competitiveness

If British goods become more attractive and competitive this will also cause the value of the
exchange rate to rise. For example, if the UK has long-term improvements in labour market
relations and higher productivity, good will become more internationally competitive and in long-
run cause an appreciation in the Pound. This is a similar factor to low inflation.

1.3 Discuss whether or not Indian firms of selected sector stand to gain in value.

The author says that recently, the President Donald Trump described India as “the tariff king",
accusing it of imposing enormously high tariffs on American products. As if it is to prove him right,
India last week introduced a second set of tariff hikes.
In the mean While, the recent tariff hikes may have been occasioned by the flourishing current
account deficit and the fall in the rupee, the rupee became weak and they only reinforce a
growing trend of protectionism in Asia’s third largest economy. Already, India is among the most
heavily protected economies in the world, the analysis shows. And if tariff hikes continue in India,
the tariff king title could stick.
In order to compare the rate of protection across countries, the effective average tariff rate is
considered and used instead of a simple average value of tariffs. The reason for opting the
effective tariffs is that the simple average of tariffs of different products might not reflect actual
trade patterns and, hence may not correspond to the tariff walls exporters actually face.
In the analysis of this study, the effective average tariff rate imposed by each country has been
calculated as a weighted average of tariffs on different goods, with the weights being the value
of aggregate imports by the five largest economies of the world—the United States, European
Union, China, Japan and India. The analysis depicts that India has the highest tariff slabs and rates
and the effective average rates of tariffs compared with the major economies of the world.

X
Keeping focus on Power Sector start of 2016 ignited with revision of Tariff Policy allowing
Producer to sell power at Exchanges on Utilities failure followed by INR 200 Billion project to
upgrade power distribution as a part of electricity to all houses by 2021 and UDAY Scheme for
Operational and Financial turn-around of Discom, to mention few to benefit the stake holder
ranging from Generation, Transmission, Distribution and Consumer. Also, Government has aim
to achieve renewable mix of 175 GW by 2022 bringing more focus to RE integration, directing to
fulfill base load by renewable than thermal, which in turn will bring paradigm shift in power tariff
structure in India.

The sudden historic decision of demonetization of INR 500 and 1000 rupees note also played a
very vital role in reducing the Aggregate Revenue Requirement of the Discoms with almost surge
of 10 to 30% in revenue receipt. Likely to make drop in power tariff in combination with above
initiative.

In this milieu, it will be interesting to witness the take of regulatory commission approving the
tariff revision petition and thereby understanding the impact of increase on different category of
consumers. In this regard, the impact analysis of the regulations on power tariffs coupled with
the factual data on the most recent power tariff's applicable on a countrywide basis was an
imperative. By meticulously examining the impact of new regulations and deeply analyzing the
possible impacts on all the stakeholders, SNP Infra Research attempts to blend the factual power
tariff data and present a dossier which would be first of its kind and would enable clients with
reliable insights and better understanding of the power tariff dynamics in the country.

The key queries which find answer in this report are: What is likely rationale behind power tariff
of India? This research delves deep to and most exhaustively examines the case of fuel pooling
and its possible impact on the end consumers and the dynamics of power industry. Through this
report attempts to unveil the assessment of RE integration visà-vis power distribution? Impact
Analysis of UDAY Scheme? Would all the states be as pro-active as Delhi in auditing the
distribution utilities to examine the power tariffs, if so then what would be its possible impact?
What would be the impact of Feed in Tariff? Also, what would be the cost of power supply and
cost of procurement vis-à-vis from power distribution utility's perspective is mapped in detail.
Queries like these and many more find their solutions in the virtue of this report which is to
explore how the Indian electricity generation sector would respond to the new tariff
environment. The report also analyses current power tariffs prevalent in all the states of India
with utility wise status. The report provides highly reliable datasets and excellent insights on
power tariffs and is a must buy for all allied stakeholders in the business value chain of power
generation to sale.

Key Topics Covered:

Part I: Overview Of Tariffs

I. Introduction

II. National Tariff Policy (NTP)

III. CERC Tariff Regulation 2014-19 for Thermal Power Station

I V. CERC Tariff Regulation 2015 for Renewable Energy Sources

V. Impact of UDAY scheme on Power Tariff

VI. Shift from Thermal to Renewable: Assessment of RE Integration

VII. Power Distribution in India

Part II: Latest Tariff Data

VIII. Schedule of Retail Supply Tariff - (FY 16-17 VS FY 15-16)

Part III: Annexures

I agree and accept the fact that Tariffs imposed by India are beneficial to Indian firms. The
benefits of tariffs are uneven, as the tariff is a kind of tax and higher import prices mean higher
prices for goods which is bad for the consumers. If the price of some product is inflated due to
tariffs, individual consumers has to pay more for the products. In short, tariffs and trade barriers
tend to be pro-producer and anti-consumer. The effect of tariffs and trade barriers on businesses,
consumers and the government shifts over time. In the short run, higher prices for goods can
reduce consumption by individual consumers and by businesses. During this period, some
businesses will profit, and the government will see an increase in revenue from duties. In the long
run, these businesses may see a decline in efficiency due to a lack of competition, and may also
see a reduction in profits due to the emergence of substitutes for their products. Tariffs increase
the prices of imported goods. Because of this, domestic producers are not forced to reduce their
prices from increased competition, and domestic consumers are left paying higher prices as a
result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more
competitive market to remain open. The tariff serves two purposes: first, to increase the cost of
the material or product so that fewer people buy it; and, second, to cover the expense of
government services required to import and use the material or product safely.

the cost of goods are increased, thereby, the needy people who does not have sufficient money
cannot afford. It has a motto to safeguard the society from harmful and dangerous products. But
by doing so people will choose the substitute products which is not at all good.