This presentation explains the reasons for the fall in the value of Indian Rupee, the cause and effect. Also what the government must do to curb the fall is included.
2. Top 5 economies by GDP (in terms of PPP)
Country GDP(PPP) $ Billion
United States 15,653
China 12,383
India 4,711
Japan 4,617
Germany 3,194
As per IMF, 2012 ranking
3. Credit Rating of BRICs and US
Country S&P Rating
S&P Future
Outlook
Moody's
rating
Moody's
Future
Outlook
Fitch Rating
Fitch Future
Outlook
BRAZIL
BBB Lower
Medium
Grade
NEGATIVE
Baa2 Lower
medium grade
POSITIVE
BBB Lower
medium grade
STABLE
RUSSIA
BBB Lower
Medium
Grade
STABLE
Baa1 Lower
medium grade
STABLE
BBB Lower
medium grade
STABLE
INDIA
BBB- Lower
medium grade
NEGATIVE
Baa3 Lower
medium grade
STABLE
BBB- Lower
medium grade
STABLE
CHINA
AA- High
Grade
STABLE
Aa3 High
Grade
POSITIVE
A+ Upper
medium grade
STABLE
UNITED
STATES
AA+ High
Grade
STABLE Aaa Prime NEGATIVE AAA Prime NEGATIVE
4. History of Indian Rupee with US$ exchange rate
4.79
4.79
4.77
4.78
7.56
8.39
7.86
12.36
17.5
32.42
44.94
44.09
50
0
10
20
30
40
50
60
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
1unitofUS$
Year
Rupee Movement
2 per. Mov. Avg.
(Rupee Movement)
Source: IJRESS, Vol 2, Issue 2
7. External Factors
Increase in US Treasury yields
– 10 year treasury yields have gone up from around
2.10% to 2.76%, and currently it is circling 2.67%
Revival of the American economy
– American economy’s growth rate – 1.7% (during
April – June 2013)
– 1.1% during Jan – March 2013
– Unemployment rate 7.4% - lowest in the last 4.5
years
8. FIIs exit from the Indian Market
http://www.moneylife.in/article/weak-fii-inflows-enough-to-weaken-the-rupee/33827.html
9. Period FII flows Rupee movement
July 2013 Outflow of $3 billion Rs. 61
June 2013
Outflow of $ 7.5
billion
Rs. 60
April-May 2012
Outflow of $ 690
million
Depreciated to Rs 55.73 from Rs.
51.16
July - Sept 2012 Inflow of $ 8 billion
Appreciated to Rs 52.70 from a
low of Rs. 56.31
Dec 2011 - Feb
2012
Inflow of $ 13 billion
Appreciated to Rs. 49.07 from
Rs. 52.17
May 2013 Inflow of $ 6 billion
Depreciated to Rs. 56.50 from
Rs. 54.29
12. Import Bill from 2009-10 to 2011-12
(for petroleum and crude oil)
409077
507382
726386
0
100000
200000
300000
400000
500000
600000
700000
800000
2009-10 2010-11 2011-12
Import Bill
Import Bill
Source: Ministry of Petroleum and Natural Gas
All value in Rs. Crores
17. Effects of Rupee Depreciation
* Increase in Import Bill
* Higher Inflation
* Fiscal Slippage
* Increase in Cost of Borrowings
* Higher cost of foreign travel
* Higher burden for students studying overseas
18. Beneficiaries of Rupee Depreciation
* Exporters
* Indian IT sector - Every one per cent change in
rupee-dollar has a 40 basis points impact on the
margins on the net profit.
* Tourism Sector
* On individual basis – Indian expatriates gain while
transferring money to India.
19. RBI Measures to curb Rupee fall
Short term interest rates on bonds have been increased by
300 bps
Liquidity Adjustment Facility (LAF) to be 0.5% of total
liabilities of individual banks
Total bank borrowing to be capped at Rs. 37000 Cr
Penal lending rate to banks under Marginal Standing
Facility (MSF) at 10.25%
20. Steps to balance the Rupee
Finance minister is positive about the agriculture growth
and also about financing the current account deficit
Better export policy to promote exports in view of
sluggish global demand
New dollar inflows by way of sovereign bonds or NRI
deposits
• May increase foreign debt, High cost due to lower credit rating
Liberalizing FDI Policy - Insurance, retail, etc.
21. Contain fiscal deficit versus the growth rate
• Reduce subsidies on food, fertilizers and petroleum – 2.5%
of GDP
Reduce import of gold and non-essential luxury
items
• Gold import restriction - 20% of it has to be exported
Increase government expenditure in productive
sectors to promote Industrial output
• Currently negative (-1.6%)