The FALL and FALL of Indian Rupee --  Will it raise ?

Lately we have been hearing in news that Indian rupee is losing its value against dollar. Investors are expressing their concerns, RBI is announcing some measures , The Finance Ministry and the political elite are assuring general public that rupee will shortly regain its value. It fell way past the psychological value mark of 60 !!!  -- 1 USD = 60.72 INR...

Is it really sinking !!

The biggest question for which everyone is waiting to find an answer..Why is rupee sinking ? More precisely how does it matter to us as a common man whether rupee gains or loses its value in foreign exchange market.. I try to throw some light on this current situation  - fluctuating rupee value.. News papers and financial articles blame different factors for devaluation of rupee - Current Account Deficit (CAD) , Banks' Non Performing Assets (NPA), Tepid global growth and external sector challenges are some of the factors that caused pressure on exchange rate as explained by our central bank (RBI). Before giving a damn about these factors, when we try to understand in simple terms :

One of the major factors that determine exchange rate is Supply and Demand. In this case supply and demand of USD (US Dollar) into Indian market regulates the exchange rate. Examining the sources of demand and supply for USD in India : Import industry that makes payments for products purchased in USD and Individuals/Companies that are interested in investing abroad are major sources of demand where as Export industry that earns in dollars by selling goods and services, Overseas companies that are interested in investing Indian markets are major sources of supply. INDIA exports Petroleum products, Iron and Steel, Chemical,Vehicles, Machinery, Spices, Buffalo live stock and many more which contributes to export revenues where as Gold and Oil imports contributes 45% of the total imports which increases the cost. When Exports and Imports balance each other, such a situation is called Balance of Trade (Ideal situation), when Exports >(greater than) Imports, it is treated as surplus (a positive situation) where as in India  Exports <(lesser than) Imports called as Trade deficit (Current Account Deficit). Since imports are greater than exports, there is high demand than supply, increasing the dollar value.In short , the more imports we make, more will be the demand for USD and rupee value depreciates . This is the reason government encourages people to use domestic products and posts circulate in face book to use Indian goods :)

Second reason for rupee sliding is  : Inflation, The more the inflation, the higher the depreciation of rupee..When we look at purchasing power of INR , say an item which costed 50 rupees an year ago with an inflation rate of 10 % becomes 55 rupees this year, where as in US the inflation is less and the item costs almost same this year and last year, in this example rupee value is devalued as its purchasing power dropped.

Also as international markets collapse, for example Euro crisis : It effects growing economies like India since we have to rely on exports to uplift our economy, if the exports are restricted in euro zone due to financial crisis, it indirectly effects our exports there by leading to large CAD - Economy slumps. As a result Foreign Institutional Investors (FII) who were investing in India backed out and started investing in safer havens (US) further widening the gap - These are external challenges and RBI is framing guidelines and policies to handle such scenarios and to boost investors confidence.

The price of every commodity is driven by market forces, if demand is high, RBI ensures that prices do not fluctuate heavily - because that might benefit one section of society and prove fatal to others : For example Onion prices go up - onion trades make money but restaurants make loss.So, what we are looking at -- does a weaker rupee means weaker economy - Economists say countries across the world try to weaken their currency, so that consumers will buy less foreign stuff, as the foreign stuff will be more expensive in their currency and export more to improve their economy. A weaker exchange rate does not mean weaker economy - 1 USD = 100 Japanese Yen does not make japan a poorer economy than India!!

Economy should be moderately controlled, RBI does this either by increasing forex reserves or by increasing cash reserve ratio`s.Currently India has a forex reserve of  $ 294.82 billions, If rupee value suddenly drops and if 1 $ = 1 INR, then the pizza that costs 10$ will be available for 10 INR and there by demand for domestic products falls in turn leads to crash in domestic market and economy drops - If we are getting an imported product for the same price as domestic product which one do we prefer !! This is the major challenge for RBI on how to manage rupee value against dollar

Who gains if rupee falls :
1) Service Industries which are getting paid in USD for their services - though Nasscom chief stated that in long run there will be no benefits for IT industry, we cannot decline the fact there are benefits.
2) Expats who are earning in US can transfer and accumulate more in INR as rupee falls.
3) Export industry gets benefit - as they get paid in USD

Who loses if rupee falls :
1) Investors who want to invest in foreign currencies have to invest more because of exchange rate - sliding rupee discourages investments in foreign entities - rather it indicates people to put money in our country to improve our economy
2) Students who pursue higher education abroad, ends up paying more as rupee falls - discourages brain drain and tries at enhancing quality in domestic academic institutes to refrain local cream
3) Consumers who buy foreign goods - they have to pay more for same product - boosts domestic markets

So is it good if rupee falls.. !There has to be a mixed answer . Conclusively,there are many factors that arise from the economic structure of Indian economy that affects the evaluation of exchange rate which in turn effects the economic growth rate of a country. Wish our central bank and Finance Ministry takes proper steps to elevate our economy and boost investors interest.. Hoping for a day where other currencies should try to peg their currency with INR like today we do with USD.

Interesting fact

You Know, Chinese economy is the worlds second largest economy with a growth rate of 7.8% in 2012. It is projected to overtake US by
2027 if it continues with same growth rate.
They have Strategic National Projects and build local infrastructure. A travel from center of Shanghai (largest city in china) to its Airport  takes only 8 minutes in magnetic levitation train. Imagine the time they can save and trade they can do....
Have we ever imagined to reach airport in less than 10 minutes, from center of any city in India.. !!!!!

PS: Interesting fact has nothing to do with sliding rupee :))

An Undesirable Nexus : Naxalism
             - Strategic Centralization and Tactical Decentralization
  In the wake of assassination of Mahendra Karma, the man who kindled the 'Salwa Judam' fire, my thoughts triggered my actions to write this blog on one of the most contentious issues that India is facing today - Naxalism. It is not only a national problem, the magnitude is global and the intensity is high, considering the human cost involved in the movement.

  Some back ground on the roots and origin of Naxalism would help understand the problem clearly, so i`m presenting the published facts that i gathered from various sources on social and communication media. As it goes, the word Naxal or Naxalite is after a village name Naxalbari , near silguri in Terai region of West Bengal. An Agrarian movement started by peasants turned into a Naxal movement ,It was started under the leadership of Charu Majmudar and Kanu Sanyal in 1967. They led the peasants, weaker sections against Land lords and money lenders who committed irregularities against helpless labor.

   History (or the story) says, in May 1967, farmers who are discontent brewing in tea gardens started an agitation against land lords. Police forces tried to stop the agitation, suddenly a demonstrator shot an arrow at police and he died. The police force left that place immediately and came back with an enforcement and opened fire. This movement lead to death of many people including 9 women and 2 children. Then started the so called movement - Naxalism.

   The movement got its ground and started spreading :  Naxals campaigned in states of West Bengal, Bihar, Orissa, Jharkhand, Chattisgarh, Andhra pradesh and south eastern part of UP. The area under the control of naxals is called 'Red Corridor' which is spread about 92,000 Sq.km. They go by different names in different regions. In towns bordering Bihar and Nepal they call themselves as Maoists, whereas in Andhra Pradesh they call themselves as PWG(peoples`s war group).In Bengal they are infamous as Naxalites. They (Maoists) are categorized into 2 major cadres-  Sangam : The intellectual elite who does the planning part (strategic centralization) ; Dalam : Fighters who executes the plan (Fighters deployed everywhere - Tactical decentralization). The Dalam part generally are drawn from the ignorant, religious bigots who are frustrated, deprived, discontented and uneducated. As these can be easily motivated by tall promises in ‘Heaven’ if killed in the struggle. A majority of them didn’t even have a clear concept as to what reason they have joined the movement.

       The naxalites claim to represent the most oppressed people who are often untouched and bypassed by electoral process and they spare none when it comes to killings, extortion s ,  kidnapping, taking hostages or disrupting railways or any other clandestine operations.

    When we take a look at the India map, the red colored area represents their complete presence. They are not located in some remote parts of India, Right in the heart (Madhya Pradesh), spreading towards west in Maharastra and have great presence in one complete border from West Bengal to Andhra Pradesh. They have the ability to divide India and they are not in hurry either, they don`t want power to rule the nation (immediately).Connecting to the characters in my previous blog, the goverment (our sage -- in cave story) is drafting plans to counter the movement,  when the Naxal Movement (our rat -- in cave story) is getting a grip on our nation. Now the Movement (rat turned lion) started attacking government (our sage). Wish our sage acts before the lion feeds on him..

     Analyzing the problem at macro level, the movement got its ideological underpinnings from the great leader 'Mao Tse Tung' , communist party of china (You may find this link for more info -http://en.wikipedia.org/wiki/Maoism). Based on the same strategy, Jawans in Vietnam did fragging (killing superiors) ; Che Guevara joined Fiedal Castro and defeated Batista`s regime - centralized che`s activities from sierra Maestra in cuba ; Implementing Dau tranh, vietnamese over threw french colonialism. In China, Cuba, Vietnam, Bolivia : They implemented the strategy templates and they achieved their purpose. Now it is INDIA.. I wish democracy continues. Though there is corruption, irregularities and crimes - INDIA the largest democratic nation in the world is still united and is still known for its rich and varied cultural heritage. Justice, Equality, Fraternity and Liberty are still the governing principles of our constitution. A majority of people are enjoying absolute independence in democratic India (Though there are some problems). Unfortunately, our communication and social media do not highlight the positive aspects of our nation as much as they do for negative aspects.. there by diverting my attention from main topic of this blog: Salwa Judam :)

       

    With sufficient back ground on Naxalism, we will move to 'Salwa Judam' (Meaning 'Peace March' in Gondi language- spoken by about 2 million people in INDIA - even i`m surprised :P). This was active in Bastar and Dantewada regions of chattisgarh. The idea is simple yet effective : Training and support is given to tribal youth by state government ; these trained people, provided with ammunition,  counter attack naxal activites. Why only tribal youth are selected ? Because naxal activities are operational in forest terrains (easy to attack and escape),tribal youth will definitely have good knowledge on forest geography and naxal attacks.. Easy to counter !! But , supreme court of INDIA declared this salwa judam as illegal and unconstitutional and ordered its disbanding on july 5 , 2011... why? The movement received critics for its violations of human rights (!!!), use of child soldiers and poorly trained uneducated youth for counter operations - this helped in increasing the presence of naxalites. Are human rights really violated or is this the plot of our sangam (mentioned in para 4) elite who identified the danger in existence of movement is an open question !!!

     On May 25, 2013 Mahendra karma founder of salwa judam was killed in a Naxal attack. He was reportedly stabbed 78 times, apart from sustaining several bullet injuries as per Times of India. Even if he committed so many mistakes (as reported by naxal spokesperson).. is it required to stab a person 78 times apart from firing number of bullets..just to kill him...!!! It is more like a revenge than a murder !! On May 29, 2013 : party spokesperson of maoists released letter stating karma, patel and vidya charan shukla are identifies as "people`s enemy" (as reported in The Hindu dated 29 May). The release has given apologies to the death of 27 innocent people and 32 injured apart from targeted leaders. Look at the human cost, to kill 1 leader (peoples enemy as they state), they killed 27 others.. Is this movement really doing any good.. I do not advocate that killing is good, but i want to highlight the human cost involved in naxal operations. "Does allowing this movement serves as a boon to oppressed sections or does it serves as a threat to the entire nation" is a point to think upon...I remember the stories of British coming to India in the name of opium trade and ruled her for next 200 years depriving her of her riches.. Now, we are experiencing this naxal movement in the name of protecting oppressed sections.. I`m wondered where we will land on !!