Naturally, I was intrigued by the prospects. In simple terms is revaluation of the Rupee good or bad for the Indian economy. And my search for an answer lead me to Sunder, my banker who also doubles as an economist occasionally. “How has the recent appreciation of the Rupee impacted the national economy?” I enquired. Sunder replied, “It is common knowledge that Rupee has indeed appreciated against the USD. However, when we benchmark the Rupee with a composite 36-currency index comprising currencies which are India’s competitor at global level, it has not shown any significant appreciation” and added “this is a strange and complex paradigm – when Rupee appreciates but yet does not lose its competitiveness, at-least arithmetically.”
Obviously, what Sunder meant was that with the Rupee appreciation has surely resulted in loss of revenue for the exporters but has not eroded their competitiveness as other currencies too have appreciated against the USD. Nevertheless when I pressed for an answer to the loss in the top-line for exporters Sunder quipped “Our business need to rework their position in the value chain. As Rupee appreciates, exporters must realise that brand India has arrived. This means we cannot continue to export or produce products at the low end of the value chain. India perhaps needs to import such goods from other developing countries and concentrate on value added products. This is possible as with appreciation of Rupee, newer technologies as well as overseas buyouts become economical and accessible to Indian manufacturers.” “Are you suggesting that export driven model has outlived its purpose? I enquired provocatively. Sunder took a deep breadth and replied “For long, we have been fixated with exports and implicitly subsidizing it through a weak currency policy as it is a global imperative. In effect, we subsidized the consumption of others. Nevertheless, an export driven policy is proving counterproductive especially when excess foreign exchange is a problem. Surely, while one is not arguing against exports, one suggests, as a strategic response to this dynamic situation Indian business should have a comprehensive re-look at domestic markets.” “Why domestic markets?” I enquired totally flummoxed by this googly. Sunder explained “India is home to one sixth of humanity. When exporters of other countries are looking at Indian markets with awe, primarily because of its size, Indian business can ill afford to ignore their own home markets. One crucial strategy not yet effectuated in our fight against the scourge of poverty is to improve domestic consumption. A rising Rupee precisely aims and abets this.” Any other argument, I queried. “Another way of looking at it is to be conscious of the fact that the recent appreciation of Rupee has more or less negated the recent spurt in crude prices. But for it we would have seen a hike in petrol and diesel prices. This would have naturally triggered another bout of inflation, leading to interest rate hikes, which would in turn have had a negative impact on the economy. Apparently, exporters have benefited from Rupee appreciation too.” Finally I asked him my original question: Is this appreciation of the Rupee good or bad for the Indian economy. Sunder succinctly put it “Narada, One man’s meat is surely another man’s poison.” One thing I understood: To seek simple answers for complex issues is unwise.