Upside of the falling rupee

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Bikky Khosla | 05 Jun, 2012
So far, the rupee has refused to recover much -- and we're talking enough of this these days. Over the past weeks, the currency has broken record after record in losing its value against the US dollar despite the Reserve Bank of India's several attempts to curb the slump, and beyond doubt, this extent of weakness signals to an ailing economy the cause of which can clearly be attributed to the ongoing Eurozone crisis as well as the scores of domestic concerns with high current account deficit and fiscal deficit at the top of the list. We need to get rid of this crisis fast.

However, despite all the negative implications of the falling rupee, there is at least one positive thing: our exporters are likely to benefit, and we should take the full advantage of this. Amid gloom, the options are limited, and we shouldn't fail to capitalise on the price advantage that is coming to our doorsteps, no matter whatever the negative effects of the falling currency may be on the economy as a whole.

And remember, the weaker rupee can help our export sector mitigate ill effects of the ongoing demand contraction in the global markets. Here, although the benefits will be affected for the sectors that rely heavily on import for raw materials and equipment, I think gains will be higher overall. Some exporters are also pointing out that hedging costs and pressure from global buyers for discount are two major deterrents, but still I think those factors cannot fully take away the advantage of the weaker rupee.

Neither our policy makers should miss this point, particularly ahead of the FTP announcements scheduled today. We have always complained about China's currency manipulation by artificially keeping the value of its currency and then exporting to the world, and now when we are getting the same opportunity disguised as the depreciated rupee, we should make the best of it by pushing exports. Canada and Iceland did the same in the recent past, and they are now recovering. I think helping exports could also spark more production here at home.

Should we hope the rupee keeps sinking? Absolutely not. A weak rupee affects all of us in one way or another, and letting it fall consistently over a long period or beyond a certain point could have catastrophic effects on the economy. So, we must help the currency get back on its feet, which seems possible only if the government takes some urgent measures to correct the macroeconomic imbalances. More work is also needed to create a better investment environment through economic and tax reforms.

The time is difficult, but as far as the rupee crisis is concerned it's not all bad, at least for the our exporters. It gives them a bit of a mixed bag, and they shouldn't fail to see the opportunity. As long as the rupee is weak, no stone should be left unturned to take advantage of it. On the other hand, the government, while straining every nerve to arrest the slide, should do its best to help exporters turn the rupee's weakness into the economy's strength.