The fall in rupee against the dollar can greatly benefit the manufacturing sector and exporters.
Even though the rupee appears to be 1.25 rupees stronger than its lifetime lower level against the dollar, a fall of 50 paise was seen in the rupee on Thursday. The special thing is that due to the way the geo-political situation has developed, further decline in the Indian Rupee may be seen. The reason for this is the complete closure of the Strait of Hormuz once again. Due to which there may be a rise in the prices of crude oil and there may be a danger of India’s fiscal deficit increasing. The effect of which can be seen in rupees.
However, whenever the Indian Rupee weakens against the Dollar, it is considered a matter of concern for the country’s economy. But within the Indian industry and policy circles, the debate on a completely opposite and shocking theory has intensified. Amidst global uncertainty and geopolitical tension, economic experts believe that the Indian rupee may soon touch the historical and psychological level of 98 to 100 against the US dollar.
The interesting thing is that instead of being afraid of this decline, a large manufacturing and export sector of the country is seeing it as a big opportunity. At first glance, this may seem strange, but behind it a deliberate strategic thinking is working to give impetus to ‘Make in India’ and to make India a ‘Global Factory’ by defeating competitors like China and Vietnam in the global market. Let us discuss this in detail…
1991 to 2026: The truth of the changing economy
Exactly 35 years ago in 1991, when India opened its economy to the world after the balance of payment crisis, the price of one dollar was only Rs 35 and crude oil was around $22 per barrel. Since then, the rupee has weakened by 3 percent annually, while oil prices have increased by an average of 4 percent every year.
At present, the global situation arising due to weak foreign investment (FDI) and Iran War has further increased the pressure on the rupee. Michael Wan, senior currency analyst at banking giant MUFG Bank, said in a media report that due to weak capital inflows and rising crude oil prices, there is every possibility of the dollar/rupee (USD/INR) going to the level of 98 and even 100.
Rupee @100: ‘Lottery’ for exporters?
When a currency weakens, the first and direct beneficiary is those companies that sell their goods abroad. Sectors like Pharma, Information Technology i.e. IT, Specialty Chemicals and Textiles are expected to directly benefit from the rupee reaching the level of 100.
For example, chemical major Navin Fluorine International in its recent investor call acknowledged that the rupee depreciation has proved to be a great ‘tailwind’ or positive factor for their operating margins as a major part of their earnings come from global exports.
Madan Sabnavis, Chief Economist of Bank of Baroda, says in the ET report that there is no doubt that with the rupee going to the level of 100, traditional industries like textile, leather industry and gems and jewelery will get a big aggressive price advantage.
Imports will be expensive, ‘Make in India’ will get a boost
The biggest strategic benefit of rupee going to 100 level will be visible within the country. When the rupee weakens, finished goods coming from abroad become more expensive in India. For years, cheap foreign goods did not allow Indian domestic manufacturers to survive in the market. Due to expensive imports, Indian companies will be forced to choose locally manufactured products.
On the other hand, Jayant R., former member of the Monetary Policy Committee of RBI. Verma is also optimistic that this currency adjustment can lead to a domestic industrial boom in the country.
Weakening of rupee is not enough
Experts clearly believe that Rs 100 is not a magic wand for Indian industries. Ajitabh Bharti, executive director of Capital
Jayant R in media report. Verma says that to increase exports and reduce the trade deficit, along with the weakness of the rupee, it is essential to have supplementary resources like strong infrastructure, better logistics, government policy support and new trade deals.
The rise of rupee towards the level of 100 against the dollar definitely gives Indian manufacturers an immediate ‘margin cushion’ and the benefit of aggressive pricing in the international market. But if Indian industry has to turn the dream of ‘Make in India’ into reality, then they will have to take advantage of this temporary phase and invest heavily in strengthening their supply chain, reducing costs and making the quality of their products at international level.
big fall in rupee
The rupee fell 50 paise to 95.75 (provisional) per dollar on Thursday amid rising tensions in West Asia and strengthening of the dollar. According to forex traders, continuous withdrawal of foreign currency, weak trend of domestic stock markets and strengthening of dollar also put pressure on the local currency. The rupee opened at 95.55 per dollar in the Interbank Foreign Currency Exchange market.
Trading in the range of 95.55 to 95.76 against the dollar, it finally closed at 95.75 (provisional) per dollar, a decline of 50 paise from its previous close. The rupee had closed at 95.25 against the US dollar with a gain of 16 paise on Wednesday. The rupee was supported by the possible intervention of the Reserve Bank of India (RBI) to prevent excessive fluctuations and prevent further decline in the domestic currency.
Meanwhile, the dollar index, which reflects the position of the US dollar against six major currencies of the world, stood at 100.07 with a gain of 0.13 percent. In the domestic stock markets, Sensex fell 150.63 points to 73,832.55 points while Nifty slipped 53.35 points to close at 23,161.60 points.
According to stock market data, foreign institutional investors (FIIs) were net sellers on Wednesday and sold shares worth Rs 2,124.98 crore. America and Iran continued attacks for the second consecutive day on Thursday, bringing the West Asia war closer to resumption. This may affect investor sentiment.
