Pros & Cons of Rising Rupee

US Dollar has been falling ever since the news came out that the oil producing countries had a discussion to end dollar dominated oil trade. There may be many other reasons why US dollar has dropped. In other terms, the other currencies have been gaining. Indian Rupee has gained over 10% against US Dollar since last March.

Here we discuss the Pros & Cons of rising rupee:

CONS:

• Exporters will be hurt. The reason is they get less rupees for the dollar they earn through export. Suppose an exporter earns $100,000 in foreign exchange. At an exchange rate of Rs. 51/US$, this is worth of 51 lakhs while at the rate of 47, it is worth of 47 lakhs only.

At the same time, it makes their products more expensive in overseas market and erode their international competitiveness.

The strengthening of rupee ha an adverse impact on various companies/sectors, which derivses a substantial portion of their revenue from the USA markets. Software BPOs are for example.

Sectors to affect: Textiles, IT, BPO,

• NRIs will be badly affected.  They will have to pay more currencies of their respective country to get same amount that they sent last month.

• A cheaper imported item will affect our domestic industries. It is good on the other hand, as Indian companies will have to concentrate more on efficiency and quality.

• Affect FDI or FII: Every time a foreign bank or company to invest in India, they will need to buy rupees. The foreign investors (FIIs or FDIs) will have to pay more for rupees to invest in India. That means less return in dollar terms for them therefore, less attractive. At the same time it will turn positive if dollar gains against rupee. For example during this fall, FIIs have gained 10% return in dollar terms since Mar 09, as they will have to pay less amount of rupees to get their dollar back.

PROS

• Importer’s rejoice; exactly opposite to the exporters. A stronger rupee means their import bill will fall in rupee terms. Biggest beneficiaries in this case will be oil marketing companies.


• Your foreign trip will cost you less, as you will have to pay fewer rupees to buy dollars to spend abroad.


• Beneficial to students who are studying abroad.


• Appreciating rupee helps in easing the pressure, related to foreign debts servicing (interest payments on debt raised in foreign currency), both Indian govt. and companies.

A stronger currency is always good for a nation for long term perspective. Short term glitches can be maintained with proper planning.


How many of us know that when India got independence in 1947, 1 Rupee was equal to 1.2 US Dollar!!