Rupee Appreciation

The recent trends have shown that rupee has appreciated and it will continue to do so for some more time. But I believe that natural trend of fall and catch-up is not such a good idea for our economy.

Some facts that have contributed in appreciation of rupee are as follows:

1. Huge capital inflow into India from developed countries is increasing the demand for rupee.
2. The US economic slowdown, many economists including the former fed chairman Greenspan expect the US economy to falter in the coming period.
3. Interest rate differential - brings in foreign money.

So this large inflow of dollars into our country has appreciated the value of rupee. As more and more foreigners wants to invest in India, but are falling short of Rupee.

The impact will be that, with appreciated rupee, we will have our exports reduced and imports increased. The result will be beneficial for our oil imports and reducing the inflation, as it make’s the import cheaper. And congress Government can now save their face from the ire of common man, which had been witnessing a high inflation of prices. But on the contrary, our exports will be hit, which will now receive less dollars per export.

China with 9.5% growth annually relies heavily on its export. And so it has pegged its currency with US Dollars. While India is letting it run naturally with the flow in market. I think the time has come for the RBI to step in and correct the rupee value, to help the exports. And I feel that the letting the currency flow naturally is not good for our country. Our country should also tag the rupee value with dollars and so encourage the exports. If India has to grow at a fast pace, then it has to control its rupee value.