Rupee Falls as Economy Goes Through Bumpy Road
Indian Rupees slipped below the psychological mark of Rs. 50 against the US dollar on Wednesday as it came under heavy pressure from investors and oil companies in a market where the greenback has been scarce for the whole year. The global financial turmoil and imminent recession in industrialized countries have made foreign investors wary of the market and now they have started to withdraw funds from Indian equity
market. According to latest data available, foreign traders have already taken away US $13 billion from Indian market whereas by this time last year, they have pumped in US $17 billion. The pressure on the Rupee increased manifold over last couple of days due to high demand by oil companies who are scheduled to pay import bills at this time of the year. These factors made the Rupee very weak as there is very little supply of the greenback in the forex market. Market analysts and forex traders are speculating that it might slip further and cross Rs. 52 per US dollar mark during next few weeks.
On the other hand the Indian government continues to put up a brave face and is trying its best to ward off serious damages to the economy despite projections of lower growth rate. In its latest report the Center for Monitoring Indian Economy (CMIE) has put the rate of growth at 8% this year. But other agencies put the figure between 6.5 to 7 percent. Indian Finance Minister P Chidambaram said the government is taking more measures in the right direction and asked industries and service providers to cut prices during his speech at the concluding day of Indian Economic Forum, recently held at Delhi. He said -
“The classic response to demand slowdown is to cut prices for the short term ..”
According to him, price cuts will fuel domestic demand and improve sales thereby making balance sheets healthy. He told industry leaders that while banks are ready to lend money, consumers are nervous and are not ready to pay the current price. But CEOs are not impressed by government’s suggestion. They think that the interest rate must fall further before they can think of price cuts .
On another note, the government has announced some protectionist measure to shield local industries. It has re-imposed import duties on certain products including steel and soybean oil. It is also considering of lowering excise duties to give some relief to the industry.
Everybody knows Indian infrastructure is in tatters and government has taken this sector as its vehicle to pump in more money in the market. It is planning to double the stimulus package to US $10.75 billion and wants to work with the private sector very closely in this regard. Financial institutions are also betting on India’s infrastructure sector and are already in the market to convince viability of investing in it. Some of them have already set-up India specific infrastructure funds as they believe valuations in the sector are more realistic at this time. The Planning Commission of India estimates that investment to the tune of $500 billion will require in India’s infrastructure sector alone and hence there is huge opportunity for equity managers.
On the job front - everybody is nervous despite assurance from Mr. Montek Singh Ahluwalia, the Chairman of Indian Planning Commission. According to him, there might be sporadic downsizing of workforce in some sector but the overall job figure will not go down even if GDP growth comes down to around 7 percent. But in reality workers are spending sleepless nights after Citi Group announced 50,000 job cuts and recent lay-off fiasco by Jet Airways. According to report, the textile sector might see 500,000 people loosing their jobs as industries across boards shut down (Dunlop Tyres have shut their shutter for indefinite period) and Delhi based realty major DLF announcing cancellation of many new projects it took up for future epansion.
There is just confusion everywhere.