As suggested earlier in my blogs
that the INR should be allowed to float free and it will be best that it finds
its own inherent value. Not only country’s CAD has evaporated at the levels
which the INR has brushed over the period of last month, but the trade deficit
too has significantly diminished.
This could only have been possible with the
depreciation of the INR, though some would argue that this depreciation would
cause inflationary pressures. But these pressures shall be short term which
will subside over a longer term. The currency’s depreciation will have
miniscule effect on the inflation as a whole.
It has been proved since time
immortal that a weak currency always helps in the exports, whatever little may
it be. It eventually adds up to the growth of a nation.
Take for example the Japanese
Yen. The Yen has been allowed to float from levels of 80 against USD to levels
of almost 100. A weak currency doesn’t only help make exports more competitive
but also intrigues the local industry to innovate as imports start becoming
expensive. It ensures that the local businesses do not become complacent and coerces
them to alter, transform and operate more proficiently.
As the world’s 2nd
largest democracy goes into general elections next year, there is but no doubt
that the RBI governor will have to restrict the movement of INR in an attempt
to display a healthy growth story to its ill-informed citizens.
But my standpoint has ever remained
same that the INR should be allowed to be fully convertible without any
restrictions. Value of any country’s currency doesn’t necessarily determine the
financial growth of it. INR is valued at to 1.6 to a YEN, does that mean India
is more advanced/developed than Japan. Think!
U dng a good job here...the blog page itself looks quite interesting now!!
ReplyDeleteYa u argument is right abt the weak currency as China for years has artificially maintained a weak Yuan against the USD in spite of the fact that the US is strongly against it and tries hard at the WTO...
This itself leads to a huge trade deficit in the US which runs into trillions and a trade surplus in China which likewise is in trillions
The RBI under Mr Rajan took a good step in trying to settle the imports from Iran in INR which would greatly help us reduce the deficit as well (Iran supplies the highest shipments of crude to India)
Gold is a pain though, I hope soon Indians stop flocking to the nearest jeweler with bag full of cash...I guess stringent laws like mandatory PAN card requirement should help but let us see!!
Cheers!!