So little time… so little to do

April 27, 2007

Green->House effect

Filed under: geeky — Priyam @ 6:59 pm

… I am talking about the slipping green – the once international (or is it still) de facto trading currency – U$ Dollar. I still remember the time when I started my coin collection and was interested in the value of coins and notes that I owned. That was a time when the Dollar would have squared with thirty of the Indian Gandhis. From that moment onwards the only recollection of this face off that I have is the Rupee slipping, or at best holding ground for some time. The times, they are a changing…. or has been for the last few months or so. So hows does that affect me ? Well directly, and indirectly.

Directly in the sense now that I have to sell off more of the dollars to fetch the same Indian convert. Now, due to my financial status the amount I send home at present does not really make a big difference to a small change in the conversion rate. But I bet it does to a whole lot of other people. I could well imagine a lot of people out here not being happy at the steady climb at the rupee. Specially if they are steady senders. But I, for one, feel happy about the position at present. I am not a well read person in the field of economics but from what I understand this current state has a lot to do with internal matters of economic India. The economy, as I understand, was growing at a steady, and at time, alarming rate and the government was paying considerable attention to curb overheating, not to mention inflation which had hooked on tot the growing curve. With a important states going under the ballot, it was just understandable that inflation would be a major agenda of campaigning. The decision to increase bank interests and the RBI taking its hands of stemming the growth of the Indian currency seem to be all attributed to that. Good or bad, is something which will probably be decided on a per case basis. What happens if the dollar loses ground ? For one, petrol being imported majorly into the country become cheaper due to its selling price being tagged in the USD. Not surprisingly, “gas” has become cheaper in India as people in the US look for more fuel efficient cars. As a lot of other factors are based on this one commodity, it seems to keep a check on inflation, more importantly survival costs of the lay man. One would say that it would thus be selfish for anyone to wish otherwise. Well, not true.

We come to face the flip side of a muscular Rupee. What used to keep the value in check was RBI’s buying of dollars to create a steady demand for the green. With a strong godown full with it, the tying hands are off allowing a face off between the two currencies. The consequential loss of demand takes the smile off the software industry and exporters in general. The whole standing point of their business being based on strong brain-power on lesser cost seems to wear off as the rupee gains resulting in lower profit or higher costs to client. Neither of this, as can be expected, is an attraction. With export of software and service (ITES) being a big chunk of the Indian claim to fame, it will be very surprising if the downward trend is allowed to continue without any check. I guess once it has dipped low enough the chaining hands will once again be brought in to play their part in stabilizing the market.

Disclaimer : The author is not an economist, nor a regular follower of the economic trends. He just happens to have an interest towards finance and some free time here and there to wander around reading articles following the Indian and/or international market. Hence the information contained herein is not to be taken as words of a guru. For that matter, all of the others posts should be treated under similar light.

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