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Strengthening of the rupee is not caused by export boom

Business Standard 

No one can dispute that the competitiveness of any country depends to a large extent on the movement of its currency. If we go by the traditional six-country Real Effective Exchange Rate, the rupee was overvalued by 30 per cent in March, according to data published by the on April 10.

We have the example of China, which has emerged as a world power by keeping its currency artificially weak despite strong fundamentals. 

During the financial year 2016-17, against the US dollar, the rupee appreciated by 2.12 per cent (from Rs 66.25 to Rs 64.84) whereas the Chinese yuan depreciated by 6.75 per cent (from ¥6.45 to ¥6.88). Thus, the rupee strengthened vis-a-vis the yuan by 8.9 per cent. 

In 1981, both the economies were almost of the same size; China’s gross domestic product (GDP) was $195.8 billion and India’s $196.8 billion. Latest estimates for 2016 are $11.392 trillion for China and $2.251 trillion for India.

Strengthening of the rupee is not caused by export boom; on the contrary, it is caused by inflow of hot money into the capital market. Hot money must not be allowed to make the country’s export uncompetitive. This goes against Make in India policy. 

An overvalued rupee is not in India’s long-term interest. Only a good export performance, particularly of labour-intensive and cost-sensitive sectors, will help speed up employment generation. India’s merchandise have stagnated since 2011-12, or rather dipped, with the figure reported for 2016-17 at $274.65 billion. In 2012-13, the corresponding figure was $300.400 billion. 

The acid test for all government policies is employment generation. Jobs can happen only through large value-added and by stopping import of consumer goods from China and manufacturing them in India.

K G Gupta   Kanpur

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