Rupee crash, Covid-19 to make India Inc's overseas debt repayments costlier

[Dark1]

@Smarana Mitra agree with most of your points except the borrow from only Indian banks at high rates. If it's a EOU , to be competitive internationally , you have to get financing at low rates.
Also our single biggest import is oil. Now the government taxes it so much that it's price more than doubles by the time it reaches us. I dont believe our government should have too much money through all these indirect and direct taxes our governments waste our taxes on statues and loan write offs before elections and pay rises for the useless public sector enterprises. Tax less and let the people have a good standard of living off their earnings. Let the money circulate within our economy by letting the money remain with the people. To discourage imports , increase import tax on non essentials like mobiles , not on oil.

 

[Smarana Mitra]

@Smarana Mitra agree with most of your points except the borrow from only Indian banks at high rates. If it's a EOU , to be competitive internationally , you have to get financing at low rates.
Also our single biggest import is oil. Now the government taxes it so much that it's price more than doubles by the time it reaches us. I dont believe our government should have too much money through all these indirect and direct taxes our governments waste our taxes on statues and loan write offs before elections and pay rises for the useless public sector enterprises. Tax less and let the people have a good standard of living off their earnings. Let the money circulate within our economy by letting the money remain with the people. To discourage imports , increase import tax on non essentials like mobiles , not on oil.

Government doesn't tax oil but only some of the oil products. This means the raw materials for plastic, soaps, paints, medicines etc made from oil becomes.low priced while only petrol and diesel remains high. So, the industry does benefit significantly from low oil prices while the common people don't. So, Indian businesses will not suffer while rich common people who can afford luxury will pay for his travels. The bikes nowadays give mileage of 60-70kmpl and hence poor villagers using 2 wheelers won't get hit hard.

Second point is that interest rates depends on inflation and currency fluctuations. Indian loan rates are higher than USA by 5% whereas Indian inflation is higher than USA by 4% and Indian rupee depreciation is also higher. Hence, Indian loan actually ends up being cheaper or comparable to USA loans. Indian currency keep depreciating 2-4% annually and this is no different.

Third point is that when government waives off loans of farmers, the money is circulating with farmers. The food prices went low for to bumper crops and hence the money with people remained with them instead of going to farmers which the government have back by loan waivers. Overall, the money is still with people and Indian economy had improved due to increased food production and hence improved economic activity. This is actually good move.

 

[CrazyZ]

When dollars come into a local market, the oversupply results in reducing the value of the dollar wrt local currency. But if the local bank does not want a strong rupee , it removes the oversupply of the dollars from the market, driving the dollar up. This is done to make exports competitive by making our goods cheap. This is good for a export driven economy like china but is of limited use for India , which is more of a domestic consumption market.
We are receiving a lot of fdi which is being removed from the market by FBI and thus weakening the rupee. I dont understand why we require 500 b foreign exchange reserves as it's much more than the 9 month of import reserves normally required. Now even the oil prices are down , so BOP is not a issue at all.

In current conditions of global market panic the the "fast money" FDI is leaving India... not going in. India needs enough forex to support these redemptions (which could be a large number) and meet its import needs. This was a problem in the Asian Financial crisis a few decades ago. Is 500 billion enough...not sure but considering SBI is not propping up the rupee despite record forex....they may not think so.

 

[Nilgiri]

"fast money" FDI

????

 

[cloud4000]

What I find amazing is that the USA is debasing its currency by printing dollars (QE)... yet its value internationally is increasing vs other currencies. That's some financial wizardry.

Because US dollar and US-dollar denominated securities, like US bonds, are safe havens when there's a financial crisis. The other safe haven is gold.

 

[CrazyZ]

USD/INR: Indian Rupee Hit by FDI Outflows as Dow Enters Bear Market
By
Ileana Ionescu
-
12th March 2020

The US dollar is higher against the Indian rupee on Thursday morning in a marked rebound after a week of edging lower. The Rupee slid back toward record lows as foreign direct investors withdrew money from India to cover margin requirements in the US stock market, which just fell into a bear market.

USD/INR was up by 43 pips (+0.57%) to 74.11 with a daily range of 73.682 to 74.345 of 5am GMT. The currency pair has been trading flat since the open of trading on Monday following a +0.68% gain last week.

Indian rupee hit by FDI outflows as Dow enters bear market
On Wednesday the Dow Jones entered a bear market, falling more than 20% from its record high, while the benchmark S&P 500 is expected to do so today with futures markets pointing to massive losses on the open of Wall Street on Thursday. The sharp declines in the USA have seen foreign investors move money out of India to satisfy margin requirements.

The Reserve Bank of India has strict rules on how the repatriation of funds to the USA so it cannot all happen at once but will be a gradual process over weeks, which all else being equal, would see a gradual decline the value of the rupee. And while the US does not seemed well prepared for the virus outbreak, the US and the dollar remain a preferred haven destination than India and the rupee.

US dollar gains as haven despite lack of big fiscal stimulus
The demand for a haven was amplified by disappointment in a speech given on Wednesday by US President Donald Trump that failed deliver and major policy announcement. The US has responded to any earlier announcement on Wednesday by the World Health Organisation (WHO) that the coronavirus is officially a pandemic by banning all travel from Europe.

Democrats have poured cold water on Trump plan for a payroll tax cut, calling it “nearly useless” to combat the coronavirus. It appears the acrimonious relationship between the Republican White House and Democratic Congress after the impeachment is making it harder to the US to respond quickly and appropriately to the outbreak with emergency legislation.

https://currencylive.com/news/10266...it-by-fdi-outflows-as-dow-enters-bear-market/

 

[Dark1]

In current conditions of global market panic the the "fast money" FDI is leaving India... not going in. India needs enough forex to support these redemptions (which could be a large number) and meet its import needs. This was a problem in the Asian Financial crisis a few decades ago. Is 500 billion enough...not sure but considering SBI is not propping up the rupee despite record forex....they may not think so.

Most of what you write is tosh but my contention is that india is not trying to prop up the rupee and let it slide , by the RBI ( not sbi) not interfering in its favor. Instead its deliberately sweeping up dollars and strengthening the usd even more , when India does not require 500 b usd.

 

[Smarana Mitra]

In current conditions of global market panic the the "fast money" FDI is leaving India... not going in. India needs enough forex to support these redemptions (which could be a large number) and meet its import needs. This was a problem in the Asian Financial crisis a few decades ago. Is 500 billion enough...not sure but considering SBI is not propping up the rupee despite record forex....they may not think so.

What fast money leaving India? indian forex is rising and it won't happen if money was leaving India.