Now that you’ve understood the reasons behind a strengthening Indian Rupee, lets see which sectors say Yay and which ones say Nay to this:
So India is an import driven country which means we rely on other countries for a lot of materials and we purchase them from them. A weaker rupee means paying more for imports but a stronger rupee means paying less.
Crude Oil: Major of our crude requirements are fulfilled through imports. Crude oil is denominated in dollars, so stronger rupee means cheaper crude oil for us.
Government Finances: When the government’s total expenditure exceeds total revenue its called as fiscal deficit. To meet this deficit the government borrows money from other countries. So if the rupee is stronger they will have to pay less in terms of interest and principal amount repayment. The government also imports oil for the country, this expenditure forms a part of government expenses. And again stronger rupee means imports at cheaper rates.
Capital Goods, Telecom FMCG, Real Estate & Infrastructure Industry: This is because their cost of production reduces due to reduction in oil prices, energy product prices also reduce and ultimately the sector is benefited.
Inflation & Banks: Overall a stronger rupee will reduce inflation and this will help banks ease borrowing rates. As a result people will borrow more, spend more increasing their economic activity.
Capital Markets: Stronger Rupee attracts foreign participants in capital markets, and also domestic participants, this spurs growth in the capital markets and a positive capital markets only mean positive economic growth.
Foreign Direct Investments: A strong rupee shows a promising future and as a result foreign companies want to invest in India for the long run, these investments increase our standard of living and provide lot of benefits like employment opportunities too. For e.g. Walmart in India.
Export Driven Sectors IT, Textile, Pharma: If rupee becomes stronger, exports become expensive. This is because countries will now have to shell out more dollars to buy the same commodity than before. Commodity economies like Brazil and Russia which saw their currencies depreciating have seen their exports picking up rapidly because exports became cheaper in dollar terms. Now if another country is exporting products at a cheaper rate, countries would obviously import from them instead of borrowing from India.Economic Survey for 2017 stated, the economy to fulfill the country’s dream of 8%-10% GDP growth, exports need to grow at 15%-20%.
Therefore, rising rupee is bad for exporters, but this can always be solved through hedging strategies.
So from all this you can say that a rising rupee is positive but like everything that has its pro’s and con’s this too has a few cons, but the pro’s definitely outnumber the cons.Want to read more on the Indian rupee, let us know in the comments below.