For NRIs, Rupee is Increasing!
New Jersey, USA: 'Rupee is increasing' a colleague of mine ran in to my cabin with so much of excitement and it was around 3 months ago. I tried to tell her it's not time to feel happy as the Rupee is actually declining. But she shot back at me and said this is the right time to send money to India and buy some real estate.
But months later, the Rupee is still falling. People who sent money to India two or three months ago are now feeling sad. The falling Rupee is a clear indication to say that the billions of dollars of NRI remittances, the combined revenues of all of our huge IT companies are just a small portion of India's huge trade deficit. In the last 10 years India grew amazingly but we increased our expenditure and debt a lot more than the development we made.
NRIs all over the world, especially in the United States are extremely happy about the falling Rupee. The value of Rupee from low 50s in the beginning of 2013 declined drastically and touched 70 by end of August for one US Dollar. Though US Dollar itself is declining in it's value, in terms of Indian Rupee it appears so strong.
There are multiple factors pushing the Rupee's value further down. The two major factors are increasing interest rates in the US and the rising Oil prices.
As all of us know, India borrowed huge amounts of money to build it infrastructure, roads etc., in the last few years. The governments in the US and Europe liberally gave huge loans to India since the development slowed down in those countries. The interest rates were near zero in the US. India's various Government agencies and Indian companies borrowed money at those cheap rates. Now the rates just started going up in the US with Federal Reserve tightening its policies. The interest rates in the US are expected to go up further and that will put a lot more pressure on the Indian economy.
Increasing tensions in the Middle East are driving the oil prices high and that is an added burden on the beaten up Rupee.
Since Rupee's value is totally determined by the demand, supply and the market sentiments just like any commodity or stock, the current trend may further continue and Rupee may further fell down. Other than reducing expenses, there is nothing else Indian government can do at this point of time.
Rupee to gain in the medium term
Though there are chances for further depreciation of Rupee in the immediate future, there are high chances of Rupee gaining strength in the medium term.
No one will listen to the good advice until something disastrous happens. With the current shock of the historically low Rupee value, everyone including the Government, Banks, Importers and the Private sector Indian multinational companies will start taking corrective measures. India is a strong, dynamic and growing economy and there are no doubts about its potential. It just needs some discipline. Discipline comes right after an accident! Result is a stronger Rupee in the medium term.
Till then, don't forget to be nice with your NRI friends!
News Posted: 28 August, 2013
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