Apr 03, 2004
A strong rupee is good for India’s economy
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”.