Future of the Indian Rupee – How Will it Affect Global Trade?
Though over 1 billion people use it in everyday transactions, the Rupee doesn’t hold much clout in international markets. It doesn’t make the news for manipulation like the Chinese RMB, nor does it have dramatic movements in commodities tied currencies like the Canadian and Australian dollar. It certainly doesn’t gain as much attention as the Euro, Pound or US dollar, even though India has more people than all three of those economic zones combined. The Rupee did not make any significant gains or losses even with the election of a financially liberal Prime-Minister in 2014 who has consistently offered positive outlooks on the local economy. Though this currency moves slow, many global regional and internal influences are set to steer the Rupee in new directions.
Facing a marginal over-valuation of only 0.5 percent, the Rupee isn’t affected much, if it all, by India’s lamentable internal corruption. Rather, a combination of other internal factors such as weak agricultural production, bottlenecks in the minerals sector, lower export prices is paired with weak global demand from the outside to create several determinants on the value of the Rupee.
The Weakened Rupee
With all these factors converging over the past two quarters it seems India’s Rupee hasn’t been in the best of standings. Final figures in July worsened even yet, as Indian importers stepped up US dollar purchases to pay American denominated debts to avoid paying exacerbated exchange losses. The greenback is set to strengthen, as reports from the US showed an index of leading economic indicators fared better than their forecast and American jobless claims shrank to the lowest level in four decades. Even more, economists see a 50 percent chance that the American Federal Reserve will raise interest rates in September, a move that would both increase the value of the American dollar against the Indian Rupee while reducing the allure of Indian-market assets. All this news has left the currency standing at 69.3 for one American dollar. (For the sake of reference, a McDonald’s meal would cost around 105 Indian Rupees.)
Minister of State for Finance Jayant Sinha assured that India’s economy is presently poised for a substantial growth phase. With multiple interest rate cuts over the past year, it seems his department and the Reserve bank of India are doing all that they can to boost India’s economy. Sinha credited efforts so far and painted a bright future for India in saying,
“We were able to restore confidence in the macroeconomic management of the Indian economy. With a decisive leadership in place, with the majority that we have in the Lok Sabha and in terms of the policy roadmap that we laid out, it became very clear to domestic investment business people and investors that we were going to very credibly and in a very thoughtful way, restore the Indian economy to the road path that it should be on.”
Sinha is right to be optimistic. A continually weakened currency will surely help Indian exports become more competitive on price. This is competitiveness is only set to increase as the intervention by the Indian Reserve Bank combined with the increasing strength of the US dollar will both put downward pressure on the Rupee until the end of 2016. Increased monsoon rains for soybean exports and announcements on India’s industrial production next month will add stability and counteractive forces to the Rupee’s falling trend, however ultimately, this currency’s future will be shaped in the offices of economists and not by the hands of Indian workers.
Make in India
Though this makes an unfavourable exchange rate for importers, the dropping price of oil will continue to drive costs down in the next two quarters, allowing for lowered production costs in India. On price alone, it seems the ease of doing business in India will increase through to the end of 2016 and beyond. Many are already taking advantage of India’s shift, such as Foxconn Technology Group, the chief supplier of Apple iPhones and iPads, who has started to make its first smartphones in India as part of the Taiwanese company’s plan to expand into the South Asian nation. Also, Xiaomi Corp., a Chinese cell phone manufacturer and American technology firm InFocus Inc. have also began using Indian manufacturers to make their products. India’s manufacturing capabilities range from high-tech facilities to handmade items and ET2C International continues to connect with many of these suppliers. Please contact us today for more information on how you can you can include India as part of your global supply chain strategy.