Yesterday my friend said something like this about the falling rupee " 56 Rupees a Dollar its bad already, what difference could it now make if its 60 Rupees a Dollar or 56 Rupees a Dollar, screw the finance minister", I guess he might be right but the numbers they trigger sentiments, a Dollar costing 56 Rupees is still better than a Dollar costing 60 rupees or for that matter a Dollar costing 62 Rupees could well be better than 60 Rupees a Dollar, "business sometimes could well be all about sentiments but not entirely", i will explain that latter. This fuel price hike was not triggered by a sudden rise in the crude oil prices but by the weakening of rupee and to make mends to our current account deficit, and why the rupee has been weakening ?, The answer to this question is confusing and interesting at the same time. Some finger's point towards the falling GDP, well some point towards the currency futures market and some to the European debt crisis, and some point it to the falling institutional investments.
If you take the last one and half year or so there have been considerable fall in the index of industrial production (IIP), which shows how the manufacturing sector has been performing which is the key to the capitalistic economic setup, IIP figures also give a rough picture of whether the consumer market is upbeat or not, and lately the IIP figures have not been so good, this definitely seems to be the effect of the high lending rates of the previous months which was meant to offset the effects of very high inflation which led to an unprecedented increase in the food prices and essential goods, Inflation has been contained to a certain limit, Food prices have come down but what do we have now "a weak rupee" and why?, the Dollar is strengthening ! for the euro is in the doll drums, that's a lame story i am not ready to buy yet, the currency of a country which has been grappling to manage its debt equation for nearly a decade gaining strength, the currency of a country which is still in the pool and has no clue what so ever about how to get its spending checked, gaining strength, the currency of a country which has one of the lowest savings rate gaining strength in the real sense, is something just so hard to buy, but well that's the story some are trying to sell.
I have quoted above that business is all about sentiments, but well not exactly, in fact business is all about speculations one commits to on the profits that is to be made, and speculations are for the most part driven by sentiments and hence the idea that "business is all about sentiments" that apart, the present sentiments towards the macro economic conditions or towards the profits that is to be made is not quite jubilant. what started off as something which had its reasons within the boundaries of micro economic condition's has gone out of the boundary to have its reasons from macro economic conditions and that's where i believe the reasons for the weakening of rupee lies, it could well be one of governments move to make our manufacturing competitive what with all the dismal IIP figures, on the lighter side i fancy that this might be one of RBI's move to bring back at least some of the ill gotten money which went out of the country, because of all these hoopla about Government doing nothing about the issue of Black money stashed abroad, well its an undenaiable fact that there will always be people who are always greedy and would always prefer to have more rupees and this could be the right time for them. A surge in the number of NRI Bank accounts in the country that would be so so on the expected lines.
