Gain from depreciation

With reference to Ajit K Ghose’s column, “The pros and cons of RBI rate cut” (July 3), while a hike in interest rates and its impact on rupee value and domestic demand are questions that need to be debated, a depreciating rupee could have positive effects on the economy. It could boost exports and thus promote manufacturing.

Costlier imports could protect domestic industries, especially small and medium enterprises, which have been facing tough competition from cheap imports.

In the service sector, segments such as information technology (IT) and IT-enabled services, tourism including medical tourism, and the hospitality sector could gain from a depreciating rupee and thus generate demand for manufactured goods, which Ghose writes about. 

He talks about growth in domestic demand from increased income in agriculture. A depreciating rupee would make agro-based exports more profitable and grant cover to farmers from cheap imports of pulses, oilseeds, sugar etc. 

Regarding companies, aren’t they supposed to hedge their repayment obligations? Moreover, a company with a reasonable debt equity ratio will likely not face insolvency.

The change in growth strategy from foreign finance-led growth to growth driven by exports and domestic demand, which Ghose advocates, is something worth considering and needs policy attention. A depreciating currency could help achieve that objective.

               Vijay Nadkarni   Mumbai

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