Fairval

Notes on Indian equities, sectors and economy

Rupee down 28% against Renmimbi, and why inflation is No 1 issue in India

Posted by fairval on July 14, 2013

This is a chart this blog has periodically published. Check the latest u[date.

The Rupee is down 28% against China’s Renmimbi over 2 years. If we go back, to a 6 year period from 2007, it is down 45%!. Rupee is down against just about all other currencies as well – USD, Euro, JPY, even Indonesia Rupiah, or Ruble etc.

Image

Ideally, this would be great for Indian manufactured exports. India should be looking forward to becoming the ‘factory of the world’.

However, there is no evidence of this yet. India’s exports are still slowing. More importantly, we haven’t heard any big announcements, like a chip maker, mobile phone maker, saying – All further investments in India becos it is the cheapest in the world.

Why is this – probably because rampant inflation is killing a lot of the benefits from rupee devaluation (haven’t checked REER data, that shud give a picture on this). That is why inflation control is a huge priority, and RBI has rightly focussed on it. So far, tho, consumer inflation remains rampant.

In that light, the Food Security Bill could not have been more ill timed. Congress will hope to win the 2014 elections thru media hype around measures like FSB. But, like most govt measures, 50-70% of money allocated for FSB will end up lining pvt pockets. 2 years from now, we will have double digit inflation, and close to double digit fiscal deficit. and Rupee heading towards three digits

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