Comments
The fall of the rupee, driven by a slowdown of capital flows (not a reversal), not only represents good news on the export front (for some exporters, anyway, those who aren't forced to part with windfall gains in a buyer's market), it represents good news for import-substituting producers as well.
The fall vis-à-vis the yuan in particular, gives telecom equipment and power plant producers a greater degree of protection than that which they had so far been unsuccessfully lobbying for. Imports from China in these categories amounted to more than $25 billion in 2010-11 (60 per cent of total imports from China).
Capital flows
Other things remaining the same, capital flows into India will pick up, as will remittances, both because the rupee has fallen, and because it now seems to have stopped falling. Whether other things will in fact remain the same is another matter.
Debt servicing will cost more for those who have raised money abroad, whether or not they hedge, and diesel/LPG subsidies will put more pressure on the fiscal deficit.
Finally, there is the cosmetic angle: India will have to wait a little longer to become a $2 trillion economy.
Comments
Comments
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