1) Rajen Narayan: Oil is a $140B drain. The oil price is falling , and is likely to stay low until 2016-17 Is there awareness to jump on this opportunity and and use it. Cairn in his recent article India has a $50B opportunity of switching to Gas and save $50B. Will India use this opportunity?
T N Ninan: I think your figure is for gross imports of crude oil; net imports (ie minus export of refined products) are about 70% of that. Predicting oil prices is a hazardous business. The demand for gas far exceeds supply; we first have to increase supply to meet existing demand. The question of "switching" from oil to gas as a preferred source of energy therefore comes much further down the road.
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2) Ashok: If domestic inflation, engendered by the government's magnanimity, was not hollowing out the inherent value of the rupee, these periodic bouts of devaluation could have been avoided. Once it falls, the rupee never climbs back again.
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T N Ninan: Yes, inflation has to be controlled, or the nominal value of the rupee will keep falling. If we manage our affairs well, there is no reason why the rupee should not increase in value. It has happened with other countries. A key issue is improving productivity faster than in other countries.
3) Rajesh: Big Business corporates like Airtel have huge foreign exchange loan payments. But "Friends" in Government make for Friendly Governments. And good friends are known to give up their right arm for the sake of cosy friendships. A Friend in Need is a Friend In-Deed. Not for nothing has Anand Sharma decided not to meet Walmart CEO - the largest Retailer in the world. Here was the leader of the FDI Retail constituency for wooing which this govt had staked its all. Why then this unimaginable rudeness? Ofcourse for Big Business friends. Rent-seeking friends demanding fees for acting as political intermediaries. When in need Phone-a-friend.
T N Ninan: Yes, devaluation of the rupee will make repayment of overseas loans costlier, if you don't have a dollar revenue stream. The more intelligent companies hedge against currency risk; most of our companies have not done that. Without going into the specific instances that you cite, it is of course true that business does influence government behaviour.
4) Prakash Hebalkar: The weak rupee reflects rather than determines the trade imbalance. We shot ourselves in the foot by banning mineral exports and slowing down on infrastructure development. Recent improvements in exports benefitted from slack capacity utilisation at ports, in power usage, etc. on account of slower domestic demand. Further it is really reflecting the growth of the US economy which has lifted all boats in global trade, notably in IT exports as well as notably in goods trade such as with the Chinese. Our relative goods trade competitiveness with regard to China does not appear to have improved a whit. Much remains to be done on the ground rather than in the currency markets to improve our trade competitiveness.
T N Ninan: Yes, of course, Mr Hebalkar, a great deal needs to be done to improve competitiveness. And the level of the currency both causes and reflects the trade position. My point was that if you are not competitive, any policy that comes in the way of the rupee finding its value is counter-productive because it will make the trade position worse than before.
5) Ruchik: My question is regarding inflation. A cheaper rupee leads to higher inflation ; It leads to higher crude prices, which affects industrial production; The rupee’s recent weakness has turned a harsh spotlight on the rapid escalation in foreign corporate borrowing in recent years and strained the already distressed Indian corporate sector. Hence, India does not have the luxury of letting the rupee find its own level.
T N Ninan: Inflation is caused by many factors; a modest fall in currency value is a relatively minor reason. We have had high inflation even when the rupee was strong. It is wrong to believe that subsidising something is a solution just because its price has gone up. Some will want to subsidise food items, others will want to subsidise fuel and electricity, yet others will want to do it for fertiliser. Someone will have to pick up the bill. Large subsidies are one cause of high fiscal deficits, which are a reason for high interest rates which then affect both business and consumers. There is no free lunch.
You want to help businesses that have borrowed overseas, but another reader is critical of such "cosy" friendsjhips.
A cheaper rupee will hurt some businesses, but it helps others who can do import-substitution, and of course it helps exporters. There are gainers and there are losers in any price change, and the government should not pick and choose, markets should.
6) Anurag: Avery narrow point of view.................. pl bring in global prespective, analyse currency movements of other countries vis a vis their general global performance (rich vs poor ratios) , you will have the right picture , why India is finally waking up to the perils of currency devaluation
T N Ninan: My point was that devaluation is not a "peril". It is necessary and helpful if the currency is over-valued, as many countries have discovered and demonstrated--including China--and as India itself has found in the past.
7) Rahul Bansal: I agree with your opinion that weak rupee helps in boosting the exports and will bring down the CAD. But India is net importer and highly dependent on imports of energy products and base metals. And weak rupee also boost the domestic prices of imported products, which result in more inflation in already highly inflation domestic environment. So, my point is that weak rupee surely boost our exports, but it will also bring more inflation and if we let rupee to depreciate further to 70-75 levels then our economy may face hyperinflation environment. And common man which is already facing hard time to survive in current inflation environment, is likely to get hit from further rupee depreciation. So, according to me we have to manage the exchange prices so that domestic inflation comes down to comfort zone.
T N Ninan: Thank you. I have commented on the "inflation through costlier imports" issue in the response to Ruchik.
8) Suresh Khairajani: I fully endorse Mr Ninan,s views,that Rupee should be allowed to depreciate further, only worry about the Oil cost which adds to inflation and Mr Ninan,s suggestions on this are needed. RBI should have a separate float for Oil imports and FII hot money. It is the FII,s who are playing with our currency and economy, which needs to be strictly monitored.
T N Ninan: The oil cost is a real issue, of course, but it is all the more important to charge the full price for an expensive import item, to discourage its consumption. As for FIIs, they will do what is in their best interest, like all investors. We have to manage our economy in such a way that investors retain confidence in our economic management. Many foreign investors have shown greater confidence in India in recent years than some of our homegrown entrepreneurs, who have preferred to invest abroad--that too is because they have found the domestic business environment unhelpful.