Dinesh Kamath's Editorial 'Indian Rupee becomes stronger' that was published in Newsband

Indian Rupee becomes stronger

The Indian rupee has gained well over 6% against the U.S. dollar this year to date. The currency hit a two-year high of 63.60 last Wednesday. Around the beginning of 2017, analysts were predicting that it would breach the 70-mark by the end of the year. But strong capital inflow has managed to turn the tide.

 Such generous inflow of capital, of course, is in sharp contrast to 2013 when the tightening of policy by the U.S. Federal Reserve had rattled the rupee. The rupee’s improving external value should be seen, at least in part, as a reflection of the improving quality of the currency. Going forward, tighter monetary policy in the West will invariably exert more pressure on the rupee.

The stabilization of oil price could be the prime factor that contributes to the appreciation of the rupee. Indian rupee is getting strong thanks to the foreign institutional investment and foreign direct investment coupled with the controlled position of the twin deficits and comfortable oil bill. At the same time we cannot set aside the concept that appreciation will make exports costly at this juncture of dwindling export markets.

The recent reforms of note ban and one land one tax rejuvenated both foreign and domestic private investments and ‘Make in India’ concept served as the facilitator of foreign investment. The government should continue to maintain a strong rupee and more exports to come in the year.

Low oil prices, benign inflation, continued faith of foreigners in the long term outlook for the economy, all these favourable factors should encourage the government to aim for sustainably higher growth by undertaking much needed reforms. It has all the political capital; only it requires to be bold.

Driven by various economic reforms as well as initiatives undertaken by the Modi government in past 3 years has helped to solidify the country’s economic chart. In 2013, the growth of the Indian economy had decreased to below 6% and the rupee crashed to 68.85 to the dollar somewhere in 2013. India was put in the ‘fragile five’ group BIITS (Brazil, India, Indonesia, Turkey and South Africa).

As the Modi government completes three years, the economic scenario looks far more promising and in a better shape as well. Indian GDP growth in 2017-18 estimated to rise to 7.4% is likely to be the highest among large economies in the world. The IMF in 2016 referred to India as the ‘bright spot in the gloomy global economy’.

The stock market is at record highs and investors, both foreign and domestic, are pouring money into the market. The economy has quickly recovered from demonetisation and now remonetisation is contributing substantially to economic growth. On the infrastructure front, road and power sectors can boast of impressive gains. GST is become a reality. Real Estate Regulation Act (RERA) will have far-reaching benign economic consequences.

As a good monsoon has been forecasted, the Indian economy is expected to grow steadily and further strengthen its roots as well.