"रुपया कमजोर नहीं हुआ, डॉलर मजबूत हुआ है" : जेटली

Did I hear a similar refrain sometime ago from someone else ? Oh , yes ,it was Virendra Shehwag tweeting-he did not score triple centuries, only his bat did. That’s pretty witty play of words that even @mrsfunnybones would love. But stay put ,Mr Jaitley is a FM who is fully ‘immersed’ in his job, he won’t exchange pleasantries over matters as grave as foreign exchange. So, what did he mean ? 

In less than six months, 21 weeks to be precise, of this financial year, the rupee has depreciated from 65.14 to 72.11 against the dollar, that is by 9%. Against the Euro and £ it has fallen by 3.8% and 2.1 % respectively. As most of India’s international trade is dollar denominated, on the face of it, it means inflow of more rupee per dollar of exports and correspondingly more outflow of rupee per dollar of purchases by businesses. 

If our only trade relations were with US and trade in balance ( exports and imports identical in dollar terms) it wouldn’t matter at all whether rupee weakened or dollar strengthened. Incremental losses and gains of rupees from dollar movements would even out. But we live in a world where dollar is just an accounting unit for trade with scores of nations, (leave aside the case when USSR once traded with India in rupees). So cross country rates against dollars affect us too. 

What really matters is the value of rupee against currencies of our trading partners . Their currency exchange rates (based on cross rates with dollar) against the rupee stood as: 

(Price in rupee  of one unit of foreign currency )

Currency               01.04.18.            08.09.18.           % change 

Us $.                    72.11.                   65.14.                  9.0

€                           83.35.                   80.26.                 3.8

£.                           93.18.                  91.26.                 2.1

Yuan.                     10.54.                  10.38.                1.6

Aus.                        51.27.                 50.03.               2.5

Canad.                   54.83.                  50.53.                8.5

Emirate.                 19.63.                  17.74.              10.7

Hong Kong.            9.19.                    8.3.                 10.7

Indonesia.              0.004864.            0.0047.             3.5

Iran.                        0.001716            0.001725.       (-) 0.52

Yen.                         0.65.                  0.61.                     6.6

Kuwait.                   237.45.              216.75.                9.6

Malaysia.                 17.39.                16.86.                 3.1

S Arabia.                   19.23.              17.37                  10.7

Singapore.               52.30.                49.68.                 5.3

SAfrica.                     4.72.                 5.5.                 (-) 4.2

S Korea.                 0.063949.           0.0614.               4.2

Swiss franc.            74.43.                 68.30.                 9.0

Venezuela.              7.22.                   6.52.                  10.7

Qatar.                      19.81.                 17.90.                10.7

Nigeria.                  0.19919.             0.1812.               10.0

Iraq.                        0.06054.            0.5498.                8.9 

Clearly, the rupee shows significant depreciation not merely against the dollar but all other currencies that matter to the nation. The argument that dollar is strengthening thus devaluing all other currencies affords little  comfort. The Indian rupee has slid a notch further, that is the worry. In fact it has fallen steepest among all other Asian currencies during this period. To say dollar has strengthened but rupee

 not fallen implies all other currencies have fallen uniformly against dollar ; and to say rupee has weakened not dollars means other currency rates vis- a- vis dollar remain unchanged, only rupee has fallen. Published rates show that currencies have fallen against the dollar, undeniably dollar is on an upward trajectory. But  the table shows that the rupee has fallen not only against the dollar but all other currencies. The rupee  thus, has weakened against all currencies. To calm emerging jitters the FM may say otherwise , but the fact is rupee has weakened, AND, dollar gone north. 

But why all the hullabaloo, what’s the big deal in a falling currency ? In the past many countries including China as a conscious policy allowed free float of their currencies resulting in sharp falls . For it is a boon for exports and remittances (more rupees against the same unit of sale/remittance of a dollar ) if imports aren’t a worry. Is India on that path, letting rupee find its own level  ? We don’t know, the establishment has chosen to live in a denial mode. 

However, gains from a depreciated rupee accrue only if the economy raises the level of exports high enough to counterbalance losses from costlier imports. Have we reached that stage ?  On current form, the picture isn’t assuring. Exports in dollars as a percentage of GDP has fallen from 17% in 2013-14 to 11.65% in 2017-18. Moreover, between the same period exports in absolute terms fell from $ 312 billion to $ 303 billion. Imports ,on the other hand, rose , though marginally, from $450 billion to $459 billion. 

Recent trends in foreign trade too aren’t enthusing. In 17-18 merchandise exports in dollar terms grew 9.78% whereas imports by double that amount, 19.59% . Going forward a hardening crude would only make matters worse. 

So is a falling rupee not a matter of concern ?