{"id":29576,"date":"2018-10-26T11:19:28","date_gmt":"2018-10-26T05:49:28","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=29576"},"modified":"2018-10-26T11:19:28","modified_gmt":"2018-10-26T05:49:28","slug":"rupee-is-dancing-to-more-tunes-this-year","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rupee-is-dancing-to-more-tunes-this-year\/","title":{"rendered":"Rupee is dancing to more tunes this year"},"content":{"rendered":"<p><strong><a href=\"http:\/\/www.thehindu.com\/todays-paper\/tp-business\/rupee-is-dancing-to-more-tunes-this-year\/article23797216.ece\">Rupee is dancing to more tunes this year<\/a><\/strong><\/p>\n<p><strong>Context<\/strong><\/p>\n<p>Menacing threats include rupee overvaluation, rising CAD, a retreat in capital flows and macroeconomic populism<strong>\u00a0<\/strong><\/p>\n<p><strong>What has happened?<\/strong><\/p>\n<p>The Indian currency has been facing some selling pressure for the last 4-5 weeks, chiefly on the back of rising crude price. The rupee fell against the U.S. dollar by a little over 2.5% in April, and 4.3% since the beginning of the year, making it the worst-performing Asian currency.<\/p>\n<p><strong>U.S. dollar recovering<\/strong><\/p>\n<ul>\n<li>And this has come at a time when the U.S. dollar seems to be on a cyclical recovery path against other major currencies on the relative strength of the U.S. economy.<\/li>\n<li>On all such occasions in the past, the rupee as well as the capital account of the country\u2019s Balance of Payments came under pressure.<\/li>\n<\/ul>\n<p><strong>Real effective exchange rate gone up<\/strong><\/p>\n<p>The real effective exchange rate of the rupee has gone up by about 4.73% since 2015-16, but it remained flat in 2017-18, although the nominal effective exchange rate of the U.S. dollar fell by about 9% during that period.<strong>\u00a0<\/strong><\/p>\n<p><strong>High inflation in coming months<\/strong><\/p>\n<ul>\n<li>RBI expects CPI inflation to lie between 4.4%-5.1% during the current fiscal year, with higher inflation expected in the first half. For the purpose of this estimate, RBI has assumed an average oil price of $68 per barrel<\/li>\n<li>If global prices turn out to be higher than this, then the inflation will be higher<\/li>\n<li>With the benchmark Brent having already touched a high of $75 per barrel, the possibility of inflation crossing 5% in the coming months is high.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong>India\u2019s inability to gain market share in a global business\u00a0 <\/strong><strong>\u00a0<\/strong><\/p>\n<p><strong>\u201cMake in India\u201d not making enough<\/strong><\/p>\n<p>Despite the claims of \u2018Make in India\u2019, India does not yet figure among the top ten exporters of manufactured goods. China now exports manufactured goods worth $2 trillion (almost equal to India\u2019s GDP) and its share of global exports of manufactured goods increased from 4.7% in 2000 to 17.9% in 2016.<\/p>\n<p><strong>Lackluster exports<\/strong><\/p>\n<ul>\n<li>While the country\u2019s imports relative to its GDP is now much lower than the peak level reached in 2012-13, the performance of exports continues to be lacklustre.<\/li>\n<li>In the financial year 2013-14, exports were 17.2% of GDP and by the financial year 2016-17, the ratio fell to 12.4% of GDP<\/li>\n<li>In the traditional areas of exports, such as garments and textiles, where India was second only to China, the country now occupies third position in textiles and fifth position in garments.<\/li>\n<\/ul>\n<p><strong>Garment exports lagging behind<\/strong><\/p>\n<ul>\n<li>In 2000 the share of clothing exports as a percentage of total global clothing exports of Bangladesh, Vietnam and India was 2.6%, 0.9% and 3% respectively<\/li>\n<li>By 2016, while India\u2019s share of global clothing exports has increased marginally to 4%, Bangladesh has improved its share to 6.4% and Vietnam\u2019s share is a stellar 5.5%.<\/li>\n<\/ul>\n<p><strong>A silver lining in exports: ITES<\/strong><\/p>\n<ul>\n<li>Indian IT services companies, which followed a low-cost global delivery model with success in the past, have not succeeded so far in graduating to the new world of artificial intelligence, machine learning and robotics<\/li>\n<li>Growing trade protectionism in the West will certainly slow down the growth of exports of IT and IT-enabled services, unless Indian companies move up the value chain.<\/li>\n<\/ul>\n<p><strong>Gold Import rising<\/strong><\/p>\n<p>India\u2019s gold import, which was $56 billion in 2011-12, declined 52% to $27 billion in 2016-17. However, a rising trend of gold import is now being seen, with the import in 2017 at 855 tonnes \u2014 a 67% rise over the previous year<\/p>\n<p><strong>Rapid increase in import of electronics goods<\/strong><\/p>\n<ul>\n<li>Rapid growth in imports of electronic goods, which was $3.4 billion in 2011-12 and $42 billion in 2016-17 \u2014 a massive 12-fold increase in five years<\/li>\n<li>There is a distinct possibility that imports of electronic imports, mostly from China, will surpass oil imports in the near future<\/li>\n<\/ul>\n<p><strong>Rupee overvaluation<\/strong><\/p>\n<p>The rising trend of import of gold and white goods could very well be a manifestation of the rupee\u2019s overvaluation<\/p>\n<p><strong>Decline in FDI<\/strong><\/p>\n<p>The FDI and portfolio flows in the first nine months of 2017-18 remained robust. But, a decline in portfolios flows is taking place now, as evidenced by an outflow of $2 billion in April<\/p>\n<p><strong>Disagreements with IMF?<\/strong><\/p>\n<ul>\n<li>Curiously, India\u2019s annual Article IV consultation with the IMF staff, which usually takes place in February, has not yet happened this year.<\/li>\n<li>As per its office in India, the earliest it is going to happen is in July, 2018.<\/li>\n<li>One wonders if the delay is due to any disagreement between Indian authorities and IMF staff on macro issues.<\/li>\n<\/ul>\n<p><strong>Conclusion<\/strong><\/p>\n<p>Higher oil prices mean tough choices, especially on the fiscal front. In fact, there are no easy options left on any of the major macroeconomic policy front in the lead-up to the next general elections.<strong>\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Rupee is dancing to more tunes this year Context Menacing threats include rupee overvaluation, rising CAD, a retreat in capital flows and macroeconomic populism\u00a0 What has happened? The Indian currency has been facing some selling pressure for the last 4-5 weeks, chiefly on the back of rising crude price. The rupee fell against the U.S.&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/rupee-is-dancing-to-more-tunes-this-year\/\">Continue reading <span class=\"screen-reader-text\">Rupee is dancing to more tunes this year<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-29576","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704887591},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/29576","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=29576"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/29576\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=29576"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=29576"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=29576"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}