The Collapsing Dollar
Published on July 27, 2007
Putting the recent appreciation of the INR in perspective.
Why should the RBI not intervene? Currency risk happens to be just one of the many risks that companies face. Some companies would be smart enough to figure out the underlying currency drivers and create a strategy to benefit from the same; and some companies would lose by not understanding the issues involved. It’s not the job of the RBI to interfere in what is essentially a market function that separates the winners and losers. By interfering in the currency markets, not only do they reward the weaker companies, they end up penalizing the companies that have understood the currency trends.
posted by Shanmuganathan N @ 7:28 PM
2 comments
2 Comments:
Mr. Shanmuganathan,
I completely agree with your view. Its about time that we take cognizance of the fact that export performance is more a function of competitiveness & productivity, rather than on a myopic focus of exchange rates.
Germany is a classic example, where exports grew strongly despite a strengthening Euro.
The subsidies that are doled out due to INR appreciation, is like a drug that gives short term relief. Long term problems cannot be 'subsidized' away.
I believe the answer lies in India focussing its energies on ways to enhance competitiveness and productivity.
In many ways, an appreciating INR will force Indians to come out of the comfort zone and think about enhancing their individual skillsets...which ultimately is beneficial from the long term perspective. But, then, how many seriously think long-term?
Hemant Sreeraman
http://haphazardlinkages.blogspot.com/
Hemant, I only agree with you partially. Yes, one does expect the exporters to increase productivity, make operations more efficient, and beat the exchange rates to exports glory - much of the USA did just that in the last century and this. However, you surely dont want the exporters to cope with an exhange rate change from 40 to 30 in one year, in an environment of real inflation within India being at least 10% ( notwithstanding official claims of about 4%) , and goad the exporters to pull up their socks in one go. After all, 300 years of slavery. and 60 years of self-inflicted socialistic myopia cannot be undone over one year's time....
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