India can negate Re rise harm by long-term reforms: Experts

Is a strengthening rupee worrisome? Not really, according to experts at the WEF- and CII-organised India Economic Summit.

Is a strengthening rupee worrisome? Not really, according to experts at the WEF- and CII-organised India Economic Summit. Even though the rupee has seen the highest appreciation among Asian currencies this year, the outlook for the future is bright and reassuring, given that India undertakes long-term measures rather than concentrating on tiding over current imbalances for short-term gains, felt the experts.

Speaking on the implications of the rupee rise, Standard Chartered chief economist and group head (global research) Gerard Lyons said, “The situation in India can broadly be categorised as the Good, the Bad and the Ugly. The Good would be the economic outlook, the Bad would be inflation and the Ugly would be currency related issues.” Comparing India’s exports to the US with China, he remarked that India’s exports are at 2 per cent right now, whereas China’s exports are 7 per cent.

On the supply side, India is struggling with certain imbalances. “For the global industry, the letdown is infrastructure and bureaucracy. India needs to raise $500 billion for infrastructure, which has to come from overseas. And certainly, the bad news is suppressing inflation,” said Lyons. The currency is likely to further strengthen and it might even go beyond 30 to the dollar in the next five years, he added. Even though he appreciated the tightening policy adopted by the RBI, he advised India to think about the rupee not just against the dollar but also against a whole basket of currencies.

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Agreeing with Lyons, National Council of Applied Economic Research (NCAER) director-general Suman Bery felt that the “things that matter” are inflation, overall growth and investment. “The Indian economy needs investment in non-tradables,” he opined. He lauded the way the country has handled its currency appreciation issues as compared to China, ruling out worries related to a strengthening of the rupee.

One of the sectors that is suffering on count of the appreciating rupee is Information Technology (IT), pointed out Satyam Computer Services founder-chairman B Ramalinga Raju. “Foreign companies, faced with rising costs, are questioning whether to continue engaging with India. As a result, India is today losing many opportunities.” He argued that much of the rupee’s rise is because of capital inflows and suggested that India invest globally as a balancing force. Appreciating the role of FDI, Bajaj Auto chairman Rahul Bajaj said that there must be “some kind of control on the hot money coming in” or the “real economy” will suffer.

Lyons said the rupee’s rise needs to be seen in the context of India’s long-term growth potential. “Today, with one-fifth of the world’s population, but just one-fiftieth of its GDP and one-hundredth of its trade, India has a tremendous opportunity to become a political and economic leader in the region.”