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  A strong rupee is good for India’s economy

Travellers to countries where the local currency is hawked by the fist-full in exchange for dollars, will appreciate why it gladdens an Indian when the rupee is talked of with some reverence. Rs 43 to a dollar and getting better! A strong currency is a quick indicator of a country’s growing economic muscle, and the perception it induces alters behaviour an Indian encounters at visa offices, immigration counters, banks, shops and hotels overseas.

But columnists have a different trade to ply. There are on occasions of a weak rupee or its forced devaluation, columns over-running with references to ‘shame’, ‘sell-out’, ‘mis-management’ etc. You might therefore expect that when the opposite --the rupee strengthening-- happens, the same opinion leaders will burst into celebration. Not necessarily. They usually go quiet. And that should not matter.

What does matter is what economists think. And India has many sober ones, capable of original, India-oriented assessment of economic theories. The emerging consensus appears to be this: a strong rupee is good for India. There are sound reasons cited in support of this conclusion.

For one, India is not a small country chained to exports. Its consumers with significant purchasing power for manufactured goods are upward of 200 million, maybe more. And that’s the equal of USA’s entire population. So it suits India to serenade its home market. Cheaper imports due to a weaker dollar imply a higher growth and expansion of the domestic market.

Drivers of domestic market are agriculture, construction and transportation. A strong rupee makes for cheap imports of petro-stock for fertiliser plants, coking coal for steel plants and petroleum for vehicles. These three becoming cheaper, is good news for Indians.

As for exports, India is in a category all by itself. Unlike China its exports are not commoditised manufactures, like say plastic toys or tinny electrical, electronic goods. Nor, unlike the tiger economies or Japan, does India have an ‘export or perish’ compulsion.

India’s emerging integration with global trade is more sophisticated and goes beyond mere physical exports. Indians are moving into many countries to set up or acquire whole businesses or plants. For them, a strong rupee is a great advantage. Many of these would-be Indian MNCs are raising money in the markets they operate and are savvy enough to protect themselves against the vagaries of currency behaviours.

On another track, consider knowledge-exports by software, research and design firms. No doubt, they will suffer a temporary decline in revenues due to rupee’s surge but they don’t lose business because of being priced out. Many of the values they create for their clients are unique and not easily replaced by a rival. The higher they are in the value chain, the more immune they are to are to currency disadvantages.

That is an example the agricultural sector is beginning to emulate. Using vast man-power, Indians are adding value to raw farm produce and branding them. The modest but steady growth of India’s wine exports is a classic example of this trend. Basmati rice, chyawanprash, Vicco, ready-to-eats are all examples of how an exporter can cater to vast niche markets that is not price sensitive.

In manufactured industrial exports too, a strong rupee may be an advantage. Take the machine tools industry as an example. It is an exercise in designing and integrating imported components with Indian inputs. Bearings, slides, spindles, motors, controls etc are imported and India provides the metals, the skills and many local parts. The pharma industry too shares this paradigm. A strong rupee benefits these exporters.

We must also remember that the rupee is not strengthening against all currencies. Ironically, in this supposed ideologically unipolar world, new currencies --like say, the Euro-- are emerging as choices. For many decades, India had a ‘rupee-trade’ with the Soviet Union and it can develop similar channels anew. Japan for major contracts nominates its Yen as the standard. India may soon command that prerogative for the rupee. So, India has many options, and also luckily the savvy to manage the situation that a strong rupee might precipitate.

The Reserve bank of India has thus far resisted the temptation of controlling the rupee’s ways. There seems in fact a willingness to let it strengthen. G Ramachandran in an article in BusinessLine applauds this course. He asserts: “The strong rupee is inclusive and expansive. It will spread the benefits of growth across nearly 200 million households, and especially across the 74 million households at the bottom of the purchasing power pyramid. The consumption of basic goods will rise as a result of the strong-rupee policy. Basic goods constitute a significant part of the consumption basket of poor households and generate almost 94% of the employment in poor households.” He concludes that a strong rupee will make “growth more equitable”.