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Apr 03, 2004
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.

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