Rupee Appreciation

he article "Making Sense of Rupee Appreciation" made an interesting reading. As the authors have pointed out there are diametrically opposite views on allowing the Rupee to appreciate.

The depreciating rupee while allowing for the perceived existence of the "Export competitiveness", also adds to the coffers of the Largest Indian Corporate "RIL", whose refining margins are better than the benchmarked Singapore rates and ONGC coffers are swelling in spite of partly providng for the petroleum bonds. Do our agriculturists who do not have any recourse but to use Diesel for even their water requirements for the field and are adjusting to international parity pricing for the Diesel, in the words of author have to further bear the brunt of a depreciated rupee to ensure that our Software, textile and other cash crop exports are competitive?

Socially and Politically such an approach would truly bring in surprises.

Another important view of the leading thinkers including Sri. Shnamugasundaram (whose article appeared in your paper recently) have correctly highlighted the danger of advocating the view of the appreciation of rupee while evaluating with respect to US dollar only. These thinkers have correctly argued that there has been no significant appreciation of the rupee when compared with the basket of currencies. A look at the behaviour of other Asian currencies in a comparable 4 year time frame support this view.

Added to this fact today, our export industries enjoy the pricing power. They are in the market because of their other inherent strengths and a favourable exchange rate will make it better no doubt, but they can survive. IT companies are not too much bothered about the impact this appreciating rupee make on their balance sheet. Textile, Diamond Industry, Cashew nut processing industry, (just to list a few) are crying hoarse about the impact the appreciating rupee is creating on their balance sheet. But they are quickly launching their equipment up gradation projects taking advantage of the appreciating rupee. Others are shrewed to enough to ensure that their value addition is retained at the same levels by driving down purchase costs(imports of Cashew Kernels and raw diamonds) again taking advantage of the appreciating rupee.

In the petroleum front we are in threshold of a major break through in Gas Exploration. Our refining capacity has significantly increased and is further increasing. This will definitely reduce the current level of our import dependence on Oil. Similarly with the current boom in the gulf market due to the high prices of crude our expatriate labour are also getting significant increases and I am sure will renegotiate their salaries to match with the appreciating rupees.

We need a stable forex climate but the boundaries and timing are influenced by our own typical situation and the increased globalisation which we are facing today. It cannot be closely pinned to some other models. Some of the benefits of this appreciating rupee is already being felt. It has brought in a negative outlook on "Inflation Expectation"and is helping controlling inflation.

Literally if the policy makers do not worry about the price of cabbage a new set will come soon enough to look at it!