Worries for India rise as rupee hits record low

By AFP
Published: May 16, 2012

India's rupee hit a record low against the dollar and stocks fell nearly two percent. PHOTO: REUTERS

MUMBAI: India’s rupee hit a record low against the dollar on Wednesday and stocks fell nearly two percent, as uncertainty over the Eurozone debt crisis and weak domestic indicators hit Asia’s third-largest economy.

The Indian unit fell to 54.43 rupees to the dollar in early afternoon, breaching its previous intraday lifetime low of 54.30 struck on December 15.

Traders said they expected the rupee to fall further in coming days with risk aversion hitting global markets and sentiment souring about India because of its ballooning fiscal deficit, slowing economy and political logjam.

“Global uncertainty is in the driver’s seat,” said Priyanka Kishore, forex strategist at Standard Chartered Bank. “There is a tangible risk of the rupee moving towards 55 rupee to the dollar levels,” she told AFP.

The Indian currency has fallen more than 10 percent since March despite persistent interventions from the central bank, which has regularly bought dollars and only last week announced new measures to support the local unit.

Exporters and other foreign-exchange earners were ordered last Thursday to convert half of their total foreign-exchange earnings kept in banks into rupees, but the move failed to prevent the decline.

Amid the turmoil, the benchmark Bombay Stock Exchange’s Sensitive Index or Sensex was down 1.89 percent or 308.54 points at 16,019 in early afternoon trade.

Investors across Asia have been dumping risk-sensitive assets on worries about the worsening political upheaval in Greece and buying up dollar holdings, perceived as safe havens in times of financial stress.

But India’s domestic problems have added to the woes, analysts say, namely slowing growth, rising inflation, strained public finances and widening trade and current account deficits.

Foreign investors have also been turned off the country of 1.2 billion people due to recent regulatory moves by the government, which has also stalled on a pro-growth reform agenda.

The falling rupee is bad news for India’s economy, pushing up import prices and aggravating inflation that is running at over seven percent, limiting the central bank’s scope to roll back interest rates and spur the economy.

It will also further strain the government’s budget because oil imports – which are priced in dollars – will become more expensive.

Finance Minister Pranab Mukherjee already sees a fiscal deficit in 2012/13 of 5.1 percent of gross domestic product (GDP).

The rupee was Asia’s worst performing currency in 2011, losing more than 20 percent of its value against the dollar in the calendar year.

The bank central said recently it had spent more than $20 billion in spot-market intervention between September and the end of February.

While the bank has a policy of not commenting on its day-to-day actions in the foreign exchange market, it said in its May bulletin that the currency’s volatility would have been worse without “the magnitude of its intervention.

Reader Comments (26)

  • Raheel
    May 16, 2012 - 5:58PM

    This is a big lesson for Pakistan not to become like India.

    We need to create our own industry and be independent from West and US investment because their Business model has been failed (Euro-zone crises). i believe we should read the book called World are America.

    What India and Pakistan has is only the alliance of West and US. Now a days they want India to become regional power against China so they will not publish any human right abuses but will concentrate on Pakistan and China. Also same thing about economy. Recommend

  • Knotty
    May 16, 2012 - 6:19PM

    That is the reason India wanted trade relations with Pakistan. Six months ago, India wasted nearly 17 to 20 Billion dollares in order to stop devaluation of her currency.
    .
    India’s temporary rise made many Indians rude and arrogant (obvious from comments on the net).
    .
    It is time for everyone to realise that countries do not grow in isolation. They devlop in blocks (EU, ASEAN, Canda/America). India’s attempt for solo flight has resulted in this mess!

    Recommend

  • khan
    May 16, 2012 - 6:20PM

    India should buy more fighter crafts. It will help European economy and Europe will give us better concessions and we will start growing again!

    Recommend

  • cautious
    May 16, 2012 - 7:20PM

    @Raheel. You need to come up with a new line. In case you didn’t know it the West happens to get along just fine with China and everyone outside of Pakistan would say that China is a closer ally to the USA than Pakistan. It’s probably that even India will eventually be a closer ally to China than your country. India’s depressed currency is a legitimate concern but has nothing to do with the business it does with the West — and in case you didn’t know it Pakistan’s biggest export market (and source of hard currency) remains your apparent nemesis – the USA.

    Recommend

  • j. von hettlingen
    May 16, 2012 - 7:27PM

    No doubt India’s economy is vulnerable to global recession. A global slowdown coupled with bureaucratic sclerosis have slowed India’s growth. It’s industrial production fell unexpectedly as manufacturing dropped slightly. This might continue unless the government took steps to boost growth.The Reserve Bank of India (RBI) had lowered the cost of borrowing to 8% from 8.5% in an attempt to boost investments. Nevertheless it takes time to reap what has been sowed.

    Recommend

  • unbeliever
    May 16, 2012 - 7:27PM

    @Knotty:
    don’t get comforting thoughts so early. what is a success if it comes without any setback, neither is it the first one, nor the last. it only increases resilience of the economy, and the ability of businessman to take tough decisions.

    and this shall pass too.

    Recommend

  • Knotty
    May 16, 2012 - 7:37PM

    @ unbeliever

    Pakistani economy did really well for more than four decades (growth rate double than India)
    .
    Yes we are having a rough period but our Indian friends dont realise: ‘THIS SHALL PASS TOO’
    .
    Its not comforting for me to see Indians suffering. Nations go through ups and downs. This is exactly I wanted to say to our Neighbours who were too happy to see us suffering (there are millions of comments on the Net/Youtube to prove that).
    .
    If our Indian friends learn humility as a result of economic slowdown, that’s not a bad deal. After all, pride comes before fall!!

    Recommend

  • khalsa
    May 16, 2012 - 7:44PM

    the entire asian market crashed. but no effect on pakistan. why? oh wait pakistan is isolated from world. see the news in ET only in business section. exports of all the major goods be it textile or mango declined.
    the demand is low in world which is west. arabs dont demand that much mango as consumers of americas.

    the temporary growth of india that many of the readers here are quoting lasted for 2 decades and even now provided the world recover india will also recover.

    Recommend

  • gautamsehgal
    May 16, 2012 - 8:10PM

    @Knotty:
    I would just like to say: Girte hai seh-sawar hi maidane jung main..vo kya khak girenge jo ghutno k bal chala karte hai..My friend you can get hit when you play but you will never get hit if you sit out..We better suffer for few days rather than sitting and doing nothing..

    Recommend

  • Zamir Malik
    May 16, 2012 - 8:23PM

    Rupee depreciation is a blessing in disguise. Weaker currency helps developing economies and Indian products will be cheaper in foreign markets and will give them more penetration. So dont think of depreciation of money as always dangerous. It is beneficial at times.

    Recommend

  • Yash
    May 16, 2012 - 8:35PM

    look guys….this up n down of rupee benefits one or the other

    in this case the exporters are benefited….if rupee value is high…importers will be benefited…

    n i doubt india’s vulnerability (economically)

    theres no count of the wealth present in indian temples n houses….plus the black economy…well its actually bad…but every coin has two sides…

    according to an estimate…india has 20,000 tonnes of gold with it…which is about 12% percent of all gold ever mined on earth…the govt hardly owns 560 tonnes….

    gist: only problem india faces is the liquidity crunch…water, wealth n wisdom are of no use if they arent flowing…

    n if the biggest consumers go down (US and Europe)….whole world will go down for a while….everything is related (unless ur talking about countries like north korea)

    Recommend

  • Yuri Kondratyuk
    May 16, 2012 - 8:45PM

    Looking at the way Pakistanis in the forum gloat, it’s almost like they have no hopes of getting any better and prefer to find solace in neighbor’s troubles!!

    Recommend

  • Pollack
    May 16, 2012 - 8:49PM

    @Knotty:
    “That is the reason India wanted trade relations with Pakistan”

    The amount involved in trade with Pakistan is a spit in the ocean. By the way, trade is a two way street in case you have conveniently forgotten it. Are you saying that Pakistani traders are incompetent and can’t make money selling goods to india when compared with Indian traders? Recommend

  • Pollack
    May 16, 2012 - 8:52PM

    @Knotty:
    “India’s temporary rise made many Indians rude and arrogant (obvious from comments on the net).”

    What about you? Are you always rude whether you rise or fall or just stagnate? Are you permanently rude? Is that a better way?

    Recommend

  • unbeliever
    May 16, 2012 - 9:14PM

    Pakistani economy did really well for more than four decades (growth rate double than India)

    maybe you got that from mr. riaz haq’ site.

    http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/83118.pdf

    i don’t think you can get more authentic data than this linkRecommend

  • BlackJack
    May 16, 2012 - 9:28PM

    @Knotty:
    Pakistanis should be worried about the fall in the Indian rupee – the only hope that they had of competitive exports to India was based on the relative value of the INR to the PKR. Now the trade imbalance can only increase.

    Recommend

  • Meekal Ahmed
    May 16, 2012 - 9:40PM

    As we do, the fiscal deficit is being understated. You have to add the provinces and come up with a consolidated figure plus any other gaps that are filled by lending/borrowing and on top of that you have to include the oil surplus/deficit fund.

    I have not look at the figures lately, but that overall consolidated fiscal deficit is not less than 8% and it has been as high as 10.5% in the past.

    That, plus the stalled momentum of reforms, political in-fighting and high-profile corruption cases are causing a great sense of uncertainty. It has little to do with what is happening in Europe.

    Recommend

  • Ashvinn
    May 16, 2012 - 10:53PM

    Guys nothing to worry we have a industry that can export and more over all we have to do is catch tax evading , get the reforms going

    Recommend

  • Meekal Ahmed
    May 17, 2012 - 2:28AM

    @Yash:

    The biggest problem Indian has that the largest concentration of the world’s poor reside therein. A friend of mine form the World Bank just came back from a visit and he said he was told that there are 800 million people at and below the poverty line.

    EIGHT HUNDRED MILLION!!!

    Out of a total population of 1.3 billion.

    Recommend

  • Azim
    May 17, 2012 - 2:39AM

    As one says ‘Give the devil its due’ – India has been one of the best performing economy alongside with China in last 10 years, and we in Pakistan don’t come close. Just some years ago Pak Rupee was equal to Indian Rupee, now we have to pay more then 2 rupees to buy 1 Indian rupee. Their economy / GDP has increased over 100% in last 10 years, while we are less then 25%.

    They will come out stronger with the current challenge, and have even more attractive export position given a weaker rupee. But what about our economy back in Pakistan, with 2% GDP and a increasing budget and trade deficit we have much more to worry about.

    So, lets not try to undermine India, it does not helps us nor does makes us look better in anyway. Lets see what comes up with the new budget and economic stats soon! and lets try to first sort our own issues first.

    Pakistan Zindabad.

    Recommend

  • Blithe
    May 17, 2012 - 5:18AM

    India’s model relies too heavily on portfolio
    flows. They needs these portfolio inflows
    to plug the trade deficit.

    It’s a vulnerable model …

    Pakistan beware!

    Recommend

  • Indian
    May 17, 2012 - 6:43AM

    @Knotty:
    And so the the deluded pursue justification and systematization of ‘delusional work’….

    Recommend

  • LaLa-Land
    May 17, 2012 - 8:01AM

    The decline of Indian economy was overdue due to the unmoved poverty index. Still, Pakistan's own economic problems have nothing to gain from it. If Indians trust in future__ spend more & store less they can easily remove the lead-weight-chains of poverty, that's actually also the true reason of Pak survival all these years__ they are a nation of spenders. Sorry to bring the root-cause life style here but it's a fact that the economy-friendly beliefs of Muslims promotes circulation of money as proved in their lofty rituals & deeds.

    Now as opposed to this we see temples in India holding billions of dollars worth of gold, while it’s worshipers who are living in the surrounding are in rags. May be thousands of years ago when food and land was abundant all you need was obedience and worship until later when population spreads & resources shrinks you need schools to teach the masses according to their future needs.

    Recommend

  • amit
    May 17, 2012 - 8:19AM

    @Meekal Ahmed:
    this not help your country .how many poor in india india have more educated people than our neigbouring country our neighbouring country have 50% population are illiterate who did not read and wright ..india have 75% litteracy rate .and 86% adult litteracy rate .india have vary educated human reacurses .and ya according to imf india gdp will be in 2012-13 will be at least 7% who is way higher than 2 -3% gdp growth and and vary high 2% population growth.

    Recommend

  • Tony Singh
    May 17, 2012 - 2:06PM

    @Meekal Ahmed:
    It has got nothing to do with poverty. Perhaps more to do with distribution of wealth. Our current account deficit is due to oil. We import almost all crude. It is 70% of total import bill. The next biggest item on import bill is Gold that accounts for about 20-22%. Private citizens in India hold about 600 billion dollar worth of gold as on date. If our obsession with cars and gold (That includes me too) comes down, then rupee with appreciate to reasonable level. We do not want very costly rupee too (that would hurt our exports which incidently are doing good inspite of global slowdown) Its our obsession with the yellow metal that worries us most.

    Recommend

  • Arif
    May 17, 2012 - 8:00PM

    @Meekal Ahmed

    A person of your stature should be more refined and rational while writing comments. Your friend was told? By whom? On what citation? The 2005 World Bank report says 41% Indians live below International poverty line. [1] The Indian GDP has more than doubled since 2005. Also, being the second most populous country in the world India obviously tends to have the biggest pool of poor people in absolute numbers.

    [1] – http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:21880725~pagePK:141137~piPK:141127~theSitePK:295584,00.html

    Recommend

More in Business