Desicritics Comments on India Economic News Weekly Report, July 27-August 2, 2007

Comment by Sanjay Garg

Sat, 4 Aug 2007 12:15:04 EDT

According to the latest trade statistics released by the Directorate-General of Commercial Intelligence and Statistics, India's trade deficit for the first five months of this financial year (April-August), is $17.431 billion. In other words, India imports more than it exports by this amount. As the INR rises, imports get cheaper, exports more expensive. So the trade deficit actually narrows. In other words, there is a net benefit to the Indian economy as a whole since we the dollar value of our deficit actually decreases. As long as we continue to import more than we export, a rising rupee will continue to be good for us. In turn, the lower our trade deficit, the less foreign exchange reserves we need to keep as a safety buffer and greater the proportion of these reserves that can be redeployed towards more productive uses i.e infrastructure. At a corporate level I agree that a rising rupee hurts revenues for exporters. However, individual exporters are going to have to become more pro-active in hedging away their foreign exchange exposure in financial markets (or by other means). Some, like TATA, have done a great job in hedging away 80% of their exposure while Infosys has not been as forward looking, suffering a decline in revenue. It is at times of stress like these that the quality of corporate management can be the difference between sink or swim.

Comment by Diganta

Sat, 4 Aug 2007 00:31:48 EDT

What are the opinions about export-import getting affected by rising rupee?

Comment by Chandra

Fri, 3 Aug 2007 06:46:06 EDT

Sanjay Good compilation. I timed the markets very well having withdrawn 50% of my money from the markets a day before the 4% crash. However, I think people should enter with caution. It appears things are all back to normal but they are not. Considering this uncertainity, Mutual fund SIPs are a smart way forward, atleast until September end. On the larger economy front, export growth has reduced to 14% and trade deficit has increased to 9 B in june. Inspite of all this, currency flows are quite positive pushing up liquidity and conseuqnet pressure on inflation. Please be ready for another round of interest rate increase if things dont settle down.