So what’s wrong.. Part I
India’s currency Re (sorry I still don’t have the symbol.) has been falling steadily. the current prices on 10 dec 2011 were 52.03950 Rs for 1 USD. Now a normal person will think that why I should be bothered about it. The people concerning with the Imports and Exports should think about it why should I. Remember it’s the same thinking by the rajwadas and local kings of ancient India that led the path to East India company to establish and conquer on Indian soil .
anyways getting back to the exchange rates of Rs we will discuss why it’s Rs is falling , what are the effects on Indian economy and the measures to rectify them.
Exchange Rates: in an open economy they depend on the delicate balance of Imports and Exports. The more you import the lesser value of your currency have.
Like for example in Afghanistan the value of their currency is very low as they have very low exports and high imports. and In UAE etc the prices of local currency are very high because of huge exports.
So is it good to have a high Exchange rate: the answer is NO, A big No for a country like India with a huge population, giving cheap labor to other countries, if the Exchange rate is too high then the IT sectors and BPOs would not make good profit resulting in job cut etc.
Then why not keep the Exchange rate very Low: for a normal country it is a very good measure to boost its exports and reduce its Imports thereby increasing its indigenous production a similar measure adopted by china. that’s why Chinese products are so cheap.
But, India has a special import … Oil.
that accounts for 28-30 % of its total imports.
Normally if the price of a commodity is increased, its demand decreases and equilibrium is reached. But Oil is an essential commodity, you cannot stop transportation or power generation (by diesel ofcos) so its demand is still high i.e. it’s consumption pattern does not show its true value. Adding to this is the govt. subsidy i.e. artificial lowering of price of petroleum products which further boosts the demand.
Then why not remove the subsidy completely: In present condition it will lead to huge inflation, as you might be experiencing to some extent.
So what to do:
Two simple lines
1) be Indian buy Indian.
2) Save oil.
1) I know the line is against globalization an blah blah … but this is what we need right now.
Lowering the imports will improve the exchange rates and will release the burden on Oil prices, and reduce the rate of inflation.
2) Ofcos saving oil will help us as we import more than 70 % of Oil from outside. That saved foreign currency can be used for importing more important commodities like high tech medical instruments, buying technical patents (technologies) etc, instead of burning in your vehicle’s exhaust. Also the subsidy paid the government on petro products may be used in building Medical Infrastructure which gets less than 2 % of our GDP.
anyways getting back to the exchange rates of Rs we will discuss why it’s Rs is falling , what are the effects on Indian economy and the measures to rectify them.
Exchange Rates: in an open economy they depend on the delicate balance of Imports and Exports. The more you import the lesser value of your currency have.
Like for example in Afghanistan the value of their currency is very low as they have very low exports and high imports. and In UAE etc the prices of local currency are very high because of huge exports.
So is it good to have a high Exchange rate: the answer is NO, A big No for a country like India with a huge population, giving cheap labor to other countries, if the Exchange rate is too high then the IT sectors and BPOs would not make good profit resulting in job cut etc.
Then why not keep the Exchange rate very Low: for a normal country it is a very good measure to boost its exports and reduce its Imports thereby increasing its indigenous production a similar measure adopted by china. that’s why Chinese products are so cheap.
But, India has a special import … Oil.
that accounts for 28-30 % of its total imports.
Normally if the price of a commodity is increased, its demand decreases and equilibrium is reached. But Oil is an essential commodity, you cannot stop transportation or power generation (by diesel ofcos) so its demand is still high i.e. it’s consumption pattern does not show its true value. Adding to this is the govt. subsidy i.e. artificial lowering of price of petroleum products which further boosts the demand.
Then why not remove the subsidy completely: In present condition it will lead to huge inflation, as you might be experiencing to some extent.
So what to do:
Two simple lines
1) be Indian buy Indian.
2) Save oil.
1) I know the line is against globalization an blah blah … but this is what we need right now.
Lowering the imports will improve the exchange rates and will release the burden on Oil prices, and reduce the rate of inflation.
2) Ofcos saving oil will help us as we import more than 70 % of Oil from outside. That saved foreign currency can be used for importing more important commodities like high tech medical instruments, buying technical patents (technologies) etc, instead of burning in your vehicle’s exhaust. Also the subsidy paid the government on petro products may be used in building Medical Infrastructure which gets less than 2 % of our GDP.
