RBI shops for US dollars, but fails to check rise of Indian rupee

May 22 2014, 12:14 IST
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RBI must recoup $80 bn to maintain import cover, say economists RBI must recoup $80 bn to maintain import cover, say economists
SummaryRBI bought close to $7 billion worth of US dollars, in the last six weeks, the Indian rupee rose 2%...

now, paving the way for appreciation in 2016.

Experts argue that the value of the currency isn’t the only factor that determines how exports fare. DK Joshi, chief economist at CRISIL points out that the state of infrastructure, transport systems, labour are also important and add to costs. “Moreover, how well the economies that we trade with do, is also important,” Joshi says. However, exporters confirm that an over-valued rupee does, nevertheless make a difference at the margin. Dilip Jiwrajka, CEO, Alok Industries, says that given how labour is more expensive than in countries such as Bangaldesh, a weaker currency is always favourable. “It’s true that buyers do try to negotiate better terms from us when they realise we are making more, but there is nonetheless more of a cushion,” he explains. While the export bump from a weaker rupee typically takes a longer time, the most immediate impact is felt in import substitution. Over the last 12 months, India’s non-oil, non-gold trade balance has dramatically improved with a weakening rupee.

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