Why strong Rupee is good for India

It's an inarguable fact that Indian rupee is an impoverished currency and resembles a malnourished child from the poverty-stricken regions of Africa we often get to see in award-winning photographs. But the poor rupee is flexible its muscles - whatever left of it - these days. And we as Indians should welcome it from the bottom of our hearts.

Rupee, which has been on a decline for the past six years, has reversed the trend and appreciated by 6.8 per so far this year. It is good sign indeed. If India wants to emerge as a developed nation, the first thing it needs to do is to strengthen the currency and improve its dollar per capita income. It's pertinent here to recall a scene from Telugu movie Dharuvu (Musical Beat), which amply explained the plight of the Indian currency

Rupee, which has been on a decline for the past six years has reversed the trend and appreciated by 6.8 per so far this year. It hit a two-year high of 63.58 versus the US dollar last week.

As things stand now, the currency is likely to continue its upward trajectory in foreseeable future, with some financial experts like Mark Mobius, Executive Chairman of Templeton Emerging Markets Group at US-based Franklin Templeton Investments, forecasting that the Indian rupee would go up to Rs 60 against greenback by the year-end.

A host of factors in domestic and global markets helped the currency's cause. Increased foreign inflows, slew of structural reforms like indirect tax GST and improved macroeconomic indicators like lower fiscal deficit have no doubt strengthened rupee. Global cues like weakening US dollar and positive market sentiments also played key role in rupee's forward march. Interestingly, RBI too seems to be favouring a stronger rupee.

As DBS (Development Bank of Singapore) mentioned in one of its daily research notes recently, the apex bank is not meddling with the currency movement except stepping in whenever there is high volatility. That's a good sign indeed.

Hopefully, Mark Mobius’ prediction comes true and the currency breaches Rs 60 mark vis-a-vis dollar this year. But export-dependent sectors like software and pharmaceuticals, which account for the bulk of exports from the country, are likely to make noise against rupee appreciation because they piggyback on cheaper currency, churn out profits and pass them as their achievements. So, cheaper currency is essential for their survival and growth.

But if India wants to emerge as a developed nation, the first thing it needs to do is to strengthen the currency and improve its dollar per capita income which currently stands at an abysmally-low level of $1,718 in 2016 (143rd rank among 187 countries). That requires a strong message from the policy makers to the India's corporate world that they can longer depend on cheaper currency to churn out profits.

What they have to do is to focus on innovation and research to reduce cost of production and cut down operational expenses. India Inc should also pursue the task of achieving economies of scale that will bring down manufacturing cost drastically and make Indian companies more competitive in the world markets.

Going forward, that should be the only way for India and Indian industry because a depreciated currency, like inflation, will hit the poor more. Many may not be aware, but India is a strange country that is home to high inflation, higher taxes and cheaper currency. Some argue that these three factors won't adversely hit the country's poor. But they are dead wrong.

Cheaper currency makes imports costlier. India imports oil and gold, the largest contributors to the country's import bill. Higher oil costs will drive up transportation costs, leading to hike in prices of all products. Poor people also buy products for their sustenance, isn't it? Higher inflation obviously fuels price rise, reducing purchasing capacity of the low income group by a notch higher.

High cost of finance (read high interest rates) increases cost of production and companies will, of course, pass the burden on to the consumers. But the damage inflicted by a depreciated currency, though not tangible, is far higher than other factors. On the other hand, a stronger currency will not only tame inflation as DBS explained, but also help the country soften its prohibitive interest rates. Therefore, it's high time that rupee fall is controlled and contained.

It's pertinent here to recall a scene from Telugu movie Dharuvu (Musical Beat), which amply explained the plight of the Indian currency. As people who watched this movie may remember, protagonist in the film plans to kidnap dance master who is going to teach in an institute in which his lady-love undergoes training, and wants to go in his place instead.

The protagonist sends his sidekicks to kidnap the dance master, a non-resident Indian (NRI) from Chicago in the US, from airport. The dance master acted by legendary Telugu comedian Brahmanandam mistakes them as those who have come to receive him. But he hates Indians for the sole reason that they have a cheaper currency called rupee. When a passenger dashes him by mistake in the arrival lounge, he comments:

"bloody Indians. All are one rupee coins. I should maintain some distance". He asks hero's sidekicks who are waiting for him with placards, to keep distance from him. An innocent among them asks him why they have to keep away from him.
“Do you know who are you?” the dance master by name Dr Rangeela asks them.

“Indians”, they answer in unison.“What is your currency?”“Rupees”, they replyThen, the dance master comes out with an interesting explanation for maintaining distance from resident Indians. This is what he says.

“My currency is dollar. What is distance between you and me?”“47 rupees” (The exchange rate of rupee against US dollar was Rs 47 when the movie was shot. It's nearly Rs 64 now) "So, maintain at least 46 feet distance from me," he orders them.

Though a hilarious scene that leaves audience in splits thanks to the versatility of the ace comedian, it goes on to highlight the plight of Indian currency and the tangible disdain the NRIs have towards the rupee. It also shows that cheaper Indian currency is the sole reason why the cream of Indian talent as well as a large number of dump heads are flocking to foreign shores.

What else can they do? Toilet cleaning job in the US fetches more salary in the US than a respectable teacher post in India! (Average annual salary in the US is $41,080 (Rs 26.3 lakh) while it is measly $1,654 (Rs 1.06 lakh) in India)

Some analysts say the Indian rupee will fall from the current levels and hit century (read one US dollar will be equal to Rs 100) in not so distant future. We hope and pray that it will not happen. Otherwise, we, bloody Indians, will have to maintain at least 99 feet distance from Dr Rangeela!

By P Madhusudhan Reddy