In today's ET, Swaminathan Aiyar pooh-poohs the claim that rupee appreciation is causing job losses in millions. He says he toured Gujarat and found little evidence of big job losses in its export oriented sectors. He is right.
But the big problem posed by rupee appreciation to date is not an export slowdown and the resultant job losses. The problem is that it entrenches the belief among market players that the rupee has become a one way bet. Combine that with higher interest rates in India compared to other countries and you have a recipe for Big Trouble- there will huge capital inflows in expectation of windfall gains and this will cause the sort of rapid appreciation in rupee that could spell serious trouble for the real economy. Then, you will have a serious export slowdown, the possibility of overheated assets and, finally, a sharp reversal in capital flows that could cause the economy to collapse.
Subscribe to:
Post Comments (Atom)
1 comment:
Currency fluctuations, governmental controls, interest rates, money supply (I, II, III ...), infrastructure, foreign investment, domestic savings rates, import/exports, etc etc etc ... and many many factors can be added/subtracted and so so many different conclusions seem possible ... It is always intriguing to me that when the Dow Jones goes up or down, there is someone somewhere who can say "it went up because of this" or someone else saying "that factor" - as if it can all be distilled into something univariant ... and so it all comes down to preconceived ideas/conceptions of how the experts want the world to be - to behave and so draw those conclusions ...
OK - I am wandering ... Aiyar talks about the rupee appreciation - yet, he also talks about a problem with inflation in the domestic Indian economy - I have a hard time understanding that - unless ofcourse there are still significant restraints to imports/hurdles to movement of matter/knowledge/infrastructure ... (Inflation is too much money chasing too few goods (some wiseman said)... so, too many rupees and not too many goods to buy because of structural barriers?) ...yes, greed will let people invest to get higher returns and withdraw when they do not - yes, causing turmoil - but can we really stop all that? Not really ... Greenspan now seems to think that there was no way to stop the sub prime debacle unless short term rates were jacked up to 40 or even 80 percent - since without such brakes, people would always find a way to keep that money circulating somehow and expect to get returns ... (Greenspan is desperately trying to redeem himself, so it seems ...)
I find it delightful that the rupee is appreciating against the dollar ... and that people want the rupee ... perhaps the US as that invincible economic giant will take a good shot across the bow and the US will wake up to a good dose of reality about the global economy ... No, our good politicians in the US rarely think beyond their noses ...
Post a Comment