Thursday, October 30, 2008
Wednesday, October 29, 2008
DEPRECIATING RUPEE AND INDIAN ECONOMY
Depreciating rupee and Indian Economy
It’s a recession when your neighbor loses his job,
It’s a depression when you lose yours
Harry S Truman
Now a days everybody is talking about recession. Economic headlines has become routine item in newspapers. All are discussing about global financial meltdown. Before the fall of October the topic for discussion was skyrocketing crude oil price, which had touched an all time high of $147 per barrel in July this year. Inflation was also a yesteryear topic of discussion.
When the sub prime mortgage crisis started to show it’s symptoms last year nobody would have imagined that it will cause this much panic. Now the financial system of whole world has been changed. World leaders are trying to alleviate the effects of financial turmoil. Investors across the globe are selling their stocks on loss. A major portion of investors have incurred marginal loss.( They will not come back in resent future).But in addition to all these one more problem has been arised, it is the depreciation of Indian rupee.
Some facts and figures:
Indian currency, the rupee, is not a prominent one in the world. But it is a currency used by the people of a dynamic economy not only that it is the currency used by the people of the second most growing economy in the world. By and large equity market meltdown is the villain of the story of rupee depreciation. On January 2008 Indian equity market touched an all time peak of 21,000+. FIIs (Foreign Institutional Investors) played a key role in shaping the Indian equity market to that gigantic level.
But from the next month onwards the Indian equity market had started it’s downturn and when months passed it registered new lows in terms of indices. The market value of some major scrips have almost halved. In this calendar year, so far, FIIs have withdrawn $1200 crore from Indian share market. Despite all confidence building measures regulators can not stop the outflow of money from Indian equities. This was a major reason for the depreciation of Indian rupee. Major currencies are losing their strength when you take the world as a whole. For eg Great Britain’s Pound recorded a five year low recently. Euro and Japan’s Yen are struggling to feel their presence.
If we take the case of Indian rupee in particular it had depreciated to a record intra day low level of 50.50 against dollar on 24 Oct 08 and closed at a rate of 49.95 which is also an all time high. This depreciation streak continued for 8 days. Government as always assured that it is reviewing the situation closely. Despite all assurances the situation is still bleak.
At the beginning of 21st century rupee was at a level of 43.48 against dollar. It depreciated to a low level of 46.75 at the end of 2000. During 2001 the rate of Indian rupee against dollar was in the range of 46.66-48.18. The same situation continued in 2002 also. Rupee was at the rate of 47.99 against dollar in the beginning of 2003 against dollar and started depreciating. During 2004,05,06 rupee didn’t show much depreciation. It was in the range of 45-44.
On second January 07 we had to give 44.20 Rs to fetch one dollar. Fortunately 2007 was also a good year for equities. FIIs started pumping huge money into Indian share market. Actually they realized the untapped potential of Indian equity market. As a result of this the dollar had lost it’s demand and the golden period of Indian rupee arised. On 20th September 07 rupee touched an all time great level against dollar ie, 39.87. After 3 months it has recorded another appreciated level of 39.41. At the beginning of 2008 we had to give 39.42 Rs to get one dollar. But soon after one month rupee crossed 40 level and started depreciating further. After 8 months it had touched an all time low rate of 50.50 against the US currency.
Asian Scenario:
In the year 2007, as mentioned earlier it was a golden time for Asia, particularly for India and China. But as a result of sub prime crisis in United States and in some European countries the situation worsened. FIIs started pulling out money from Indian shares. Indian share market plunged and share prices returned to the prices five years before. When FIIs pulled out money from Indian Equities they immediately converted Indian ruppe to dollar. As a result of this the demand for dollar increased and rupee depreciated. Although the domestic conditions in US is not very good, European countries and Japan also witnessing the same problem. Apparently the strength of US dollar increased.
In Asian situation only Japanese Yen is fighting well against dollar and it had recorded 16% increase in valuation against dollar in recent past. (The valuation is from Jan 08 to Oct 08). During this period the worst hit currency in the Asian region is South Korea’s Won which depreciated 47.24% so far. The second worst hit currency is Pakistan’s rupee which had recorded 33.70 percentage degradation. Indian rupee is the third worstly hit currency in the region, the percentage is 11.44. Unlike China and GCC countries India is a major importer in the Asian region, particularly oil. Almost 75 percentage of our oil needs are satisfied through import.
In this regard rupee depreciation is a major problem and should be tackled properly. When rupee depreciated importers have to give more money to get enough dollar to pay the bill. There should be some standard in the exchange rate. On October 10 the forex reserve of India have fallen from $316 billion dollar to $274 billion dollar. RBI has sold about $42 billion to give strength to Indian rupee. Some more measures should be needed to tackle the situation.
If the confidence in the stock market is back rupee will bounce back. FIIs will park their money in Indian bourses. We can hope that this will happen in the recent future. After all currency is the back bone of every economy. Some sustainable measures is the need of present.
It’s a recession when your neighbor loses his job,
It’s a depression when you lose yours
Harry S Truman
Now a days everybody is talking about recession. Economic headlines has become routine item in newspapers. All are discussing about global financial meltdown. Before the fall of October the topic for discussion was skyrocketing crude oil price, which had touched an all time high of $147 per barrel in July this year. Inflation was also a yesteryear topic of discussion.
When the sub prime mortgage crisis started to show it’s symptoms last year nobody would have imagined that it will cause this much panic. Now the financial system of whole world has been changed. World leaders are trying to alleviate the effects of financial turmoil. Investors across the globe are selling their stocks on loss. A major portion of investors have incurred marginal loss.( They will not come back in resent future).But in addition to all these one more problem has been arised, it is the depreciation of Indian rupee.
Some facts and figures:
Indian currency, the rupee, is not a prominent one in the world. But it is a currency used by the people of a dynamic economy not only that it is the currency used by the people of the second most growing economy in the world. By and large equity market meltdown is the villain of the story of rupee depreciation. On January 2008 Indian equity market touched an all time peak of 21,000+. FIIs (Foreign Institutional Investors) played a key role in shaping the Indian equity market to that gigantic level.
But from the next month onwards the Indian equity market had started it’s downturn and when months passed it registered new lows in terms of indices. The market value of some major scrips have almost halved. In this calendar year, so far, FIIs have withdrawn $1200 crore from Indian share market. Despite all confidence building measures regulators can not stop the outflow of money from Indian equities. This was a major reason for the depreciation of Indian rupee. Major currencies are losing their strength when you take the world as a whole. For eg Great Britain’s Pound recorded a five year low recently. Euro and Japan’s Yen are struggling to feel their presence.
If we take the case of Indian rupee in particular it had depreciated to a record intra day low level of 50.50 against dollar on 24 Oct 08 and closed at a rate of 49.95 which is also an all time high. This depreciation streak continued for 8 days. Government as always assured that it is reviewing the situation closely. Despite all assurances the situation is still bleak.
At the beginning of 21st century rupee was at a level of 43.48 against dollar. It depreciated to a low level of 46.75 at the end of 2000. During 2001 the rate of Indian rupee against dollar was in the range of 46.66-48.18. The same situation continued in 2002 also. Rupee was at the rate of 47.99 against dollar in the beginning of 2003 against dollar and started depreciating. During 2004,05,06 rupee didn’t show much depreciation. It was in the range of 45-44.
On second January 07 we had to give 44.20 Rs to fetch one dollar. Fortunately 2007 was also a good year for equities. FIIs started pumping huge money into Indian share market. Actually they realized the untapped potential of Indian equity market. As a result of this the dollar had lost it’s demand and the golden period of Indian rupee arised. On 20th September 07 rupee touched an all time great level against dollar ie, 39.87. After 3 months it has recorded another appreciated level of 39.41. At the beginning of 2008 we had to give 39.42 Rs to get one dollar. But soon after one month rupee crossed 40 level and started depreciating further. After 8 months it had touched an all time low rate of 50.50 against the US currency.
Asian Scenario:
In the year 2007, as mentioned earlier it was a golden time for Asia, particularly for India and China. But as a result of sub prime crisis in United States and in some European countries the situation worsened. FIIs started pulling out money from Indian shares. Indian share market plunged and share prices returned to the prices five years before. When FIIs pulled out money from Indian Equities they immediately converted Indian ruppe to dollar. As a result of this the demand for dollar increased and rupee depreciated. Although the domestic conditions in US is not very good, European countries and Japan also witnessing the same problem. Apparently the strength of US dollar increased.
In Asian situation only Japanese Yen is fighting well against dollar and it had recorded 16% increase in valuation against dollar in recent past. (The valuation is from Jan 08 to Oct 08). During this period the worst hit currency in the Asian region is South Korea’s Won which depreciated 47.24% so far. The second worst hit currency is Pakistan’s rupee which had recorded 33.70 percentage degradation. Indian rupee is the third worstly hit currency in the region, the percentage is 11.44. Unlike China and GCC countries India is a major importer in the Asian region, particularly oil. Almost 75 percentage of our oil needs are satisfied through import.
In this regard rupee depreciation is a major problem and should be tackled properly. When rupee depreciated importers have to give more money to get enough dollar to pay the bill. There should be some standard in the exchange rate. On October 10 the forex reserve of India have fallen from $316 billion dollar to $274 billion dollar. RBI has sold about $42 billion to give strength to Indian rupee. Some more measures should be needed to tackle the situation.
If the confidence in the stock market is back rupee will bounce back. FIIs will park their money in Indian bourses. We can hope that this will happen in the recent future. After all currency is the back bone of every economy. Some sustainable measures is the need of present.
Tuesday, October 21, 2008
Tuesday, October 14, 2008
Tuesday, October 7, 2008
Friday, October 3, 2008
Subscribe to:
Posts (Atom)
