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Will Rupee Rise against Dollar ?


66 – my reaction like every other indian was WTF.

Let us examine the scenario.

Cause :

  •  The rupee has fallen 15% in just four months and the blame is being laid on global economic conditions but weak domestic market is to be blamed.
  • During recession the government went in for consumption oriented fiscal strategy causing rise in the fiscal deficit , fall in domestic saving and sharp increase in imports , hence increasing the current account deficit (CAD) to unmanageable proportion. India has a CAD (shortage of dollars) of $60-70 billion per year.
  • Lack of policy decision was another big factor.

On a brighter side , the weak currency also provides a opportunity in improving exports which may help the trade deficit to shrink.

Impact :

A high dollar means high import bill , causing country’s fiscal deficit to increase and further stoking the inflation.

Solution :

  • To make up for $60-70 billion gap we need to revive investor sentiment (FII) by attracting capital flow and fiscal consolidation.
  • We need to restore fiscal discipline , there is a urgent need to correct inflation and reduce CAD.
  • Raising of the Foreign Direct Investment (F.D.I) cap in retail and aviation industry can be a booster.
  • Issuing Non Resident Indian (N.R.I) bonds can raise upto $10bn.

I hope we can revert back to the range of 47-50 , lets see how long the pain continue?



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