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2. What is the news?
Source: http://www.dollars2rupees.com/Charts
From average Rs. 44 in July 2011, it is now hovering between Rs. 57 and Rs. 58
Indian Rupee has depreciated
more than 25 per cent since 2011
against the USD!
Rupee under attack!
For example: Rupee versus US Dollar

3. Why is the “rate” so important?
 Exchange rate
 price of a country’s currency in respect to other
country’s currency
 Example: USD vs INR, GBP vs INR, Euro vs INR
 Foreign Exchange market
 a place to convert currency
 authorized currency dealers
 Conversion rate
 usually the Spot rate
 Forward rate
 Inter-bank rate (IBR) for buying and selling

4. What leads to fluctuations?
 As simple as Demand and Supply
 Too much dependency on imports
 When Foreign investors take away the monies!
 Grim global economic outlook
 essentially due to the European debt crisis
 PIGS!
 Lack of firm initiative by government on issues such as
allowing FDI in retail.
 Recent debacles have further rendered the Indian
market unattractive to a certain extent (2G, Coalgate)
 Weaker Capital markets
 Upbeat US jobs
 Speculation that US Federal Reserve may cut back on
investments into Emerging markets
Portugal, Italy, Greece and Spain

5.  Leads to costlier imports i.e. higher import costs
 Oil imports, Capital goods, Iron and
Steel, Coal, fertilizer, pulses, edible oils
 Cost of overseas study!
 Leads to inflationary pressures
 Increase in import prices of essential commodities are
bound to increase the prices of the final goods.
 This makes it costlier for the consumers and hence
inflation might be pushed up further.
 Higher borrowing costs
 Foreign currency loans are cheaper due to interest
rate differentials
 But exchange rate fluctuations may negate it
What is the worry?

6.  Increasing Fiscal Deficit!
 The difference between total revenue and total
expenditure of the government.
 Indication of total borrowings needed by government
What is the bigger worry?
Difficult to
attract foreign
investment if
fiscal deficit
remains high

7.  Increasing Fiscal Deficit!
 Worsening Current Account Deficit
 when a country's total imports of goods and
services is greater than the country's total
export of goods and services.
 Balance of Payments (Imports less Exports)
worsens makes a country a net debtor to the
rest of the world.
What is the bigger worry?

8. Current Account Deficit

9. Current Account Deficit
(Toys etc!)
11-1210-1109-1008-09List of Imports
High imports: Oil and Gold

10. Current Account Deficit
Germany
China
Japan

11.  Increasing Fiscal Deficit!
 Worsening Current Account Deficit!
 Exchange rate risk drives away foreign investors
 which in turn depreciates the local currency!
 A key attraction of “higher interest rate” is lost
 Credit rating agencies also downgrade India’s rating.
 Sovereign rating of a country determines
investment potential into the country
 Thankfully Fitch recently revised India’s outlook to
stable from negative!
 Impact on Exporters
 though benefit initially, also feel the pinch due to:
 adverse effect on inflation
 sluggish demand from western world
What is the bigger worry?

12.  Economic turmoil
 Slower GDP
 Hardly at 5% (back to 1991s!)
 Political turmoil
 Central Elections next year
 Do we have a stable party?
 Lack of leadership
 SCAMs!
 nearly add up to $1.8 Trillion
Adding fuel to the fire!
VVIP Chopper Deal Scam
Coalgate!
2G Spectrum
Commonwealth games
Telgi Stamp Paper
Satyam
Harshad Mehta
Fodder
Hawala
Bofors

13. Is India’s rupee only fluctuating?
This is 2013 comparison
Shows South African Rand, Japanese Yen have also
suffered big time recently

14.  RBI’s role:
 Using Forex reserves (nearly $300 billion)
 Easing Control norms
 can increase the FII limit on investment in
government and corporate debt instruments.
 can invite long term FDI debt funds e.g.
infrastructure sector.
 can enhance the ceiling for External Commercial
Borrowings (ECB) to allow more ECB borrowings.
 Initiate key policy reforms
 rolling of Goods and Services Tax (GST), Direct Tax
Code (DTC) etc. to enable free flow of currency i.e.
supply and demand coherence
How to combat?

15. Shekar Kupperi

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