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-   -   Why Rupee always falls against $,£,€ ??? (https://www.team-bhp.com/forum/shifting-gears/24087-why-rupee-always-falls-against-10.html)

@shankar.balan; When I went to study in the UK in 1973 the pound was £1=Rs.18 (improved to 15 at one point). Remember at that time the pricing of the rupees was controlled and fixed. Actual price would have been more like 25-27. Now if you just vector in our inflation vis a vis theirs the bulk of the depreciation would be seen.

Even today while our Bond Yields are about 8.0-8.5% the same in the west are under 2%. Even Italy and Spain are better than us.

Another, factor (partly built into the above) is the profligate governments. We have long followed a spend and print currency policy. This adds to the woes. The west by and large have worked on the supply side model with control on the expenditure (and deficit) using the Hayekian model while we have always been Spend Side Keynesians. The west did go Keynesian for a few short periods but switched out fast. US went Keynesian but then the Tea Party movement forced them to revert. Germany, Austria etc. after suffering the very high inflation post WW-II have always been Hayekian, as have the Swiss.

In India the only time I think I saw Hayekians having a look in was the NDA period (esp Jaswant Singh). Our NAC and UPA are 100% populated by the Keynesians.

From a currency point of view, spending internationally is the same as importing. So our being 4th largest spender in luxury holidays will depress our currency not make it more valuable.

Anyway - what's the dollar value of 4th largest spenders of luxury holidays and how is a luxury holiday defined? Is this value anything significant when consider global import/export figures?

The number value of a currency is really a meaningless comparison. If I remember correctly, just before Italy converted to the Euro, you could get 1000 Italian Lira for 50 Rs or something. What exactly does this tell us about relative values of Indian & Italian currency?

Also we can make our currency look strong by official changing our currency tomorrow to a new currency called NIR (New Indian Rupee). Just say current currency can be exchanged at any bank for 1 NIR = 10 INR. So now you will be able to buy 1 Chinese Remnimbi for 80 NIPaise and Malysian Ringgit for 1.7 NIR and Dollar for 5.5 NIR. But what does this get us?

By the way, a few countries used to do this changing currency by 1/10 for convenience purposes when their inflation used to become very high.
India currency is largely convertible (though RBI manipulates it some by trading). So the price is largely decided by the market. The more the imports, the more the international luxury holidays, more will be the rupee dipping.

Also a weak currency is advantageous in lot of ways. China exports so much by artificially weakening their currency all the time.

If we manufactured anything worth exporting, our exports would increase because of the dollar becoming stronger relative to the rupee.


The largest gold reserve figure is a function of the population. I would think that the per capita personal gold reserve of India is well below average.

:) god! I need to study more economic theory .

The gist of this thread is that most people want to go abroad for the money, most would love to stay back in india if they had enough money and enjoy perks india provides to those with lots of cash!!

I.e. lots of servants, cutting to the front of the line, influence, degrees for kids, residence in exclusive townships.

A case of ' grapes are sour '!?!?

@drsingh; You will find a popular account in Keynes Hayek: The clash that defined modern economics by Nicholas Wapshott

Also, Hayek's seminal text The Road to Serfdom.

The former is a very good read with a lot of history. Both are available from Flipkart.

Thank you very much carboy and sgiitk for your erudite replies and such a high quality of information sharing!
Amazing to learn these new nuances on subjects which I know very little about, with my blinkered and straight-line vision.
So, suppose now Spain and Portugal and Greece are in a crisis. Suppose also that this is the Pre- Euro era when Greeks had their Drachmas, Portuguese and Spanish had their Pesos and Pesetas and all that.
If the hypothesis above were to be considered then how would the Rupee have fared against those currencies in a scenario like that?
Would we still have had a lower value than them or not?

Another question - its been said we re not exporting things of great value - but we are exporting clothing and software and so on and so forth aren't we? I know that China is exporting tons of manufactured stuff and hence are able to preserve a balance - going by your explanations. In the same breath, is India's inability to preserve that balance a function of the sheer value of exports OR is it that greater weightage is given to manufacturing over soft stuff?

Just another dumb query from me, please bear with it!

@shankar.balan; We would have gained against these currencies, at least over the past year. Even today Greek debt is attracting low double digit returns.

It is not just exports, it is the balance of trade, which continues to be negative in our case. Inflation is also over 7% so have no hopes.

I think we have gone OT enough so maybe you, drsingh and myself can discuss on the PM channel. Incidentally, I have ordered Hayek's the Road to Serfdom Today.

drsingh you have hit the nail on the head. You fool people on the lower end of the spectrum by apparently putting more money into their pockets, notwithstanding the fact that actually in the long run it is less money. The better off 'hopefully' understand better.

There is no weight-age for anything.

Currency is market driven. The predominant currency for international trade is USD i.e. even if we import from a different country, we would mostly have to pay in dollars. Lets say 1USD = 50INR. Let's say our dollar inflow (from exports, FDIs, FIIs, people visiting India etc) is 100 USD and our dollar outflow(from imports, people travelling abroad etc) is 200 USD. So essentially we buy more dollars for rupees than sell dollars for rupees. Hence there is more demand for buying dollar than selling dollars. So for eg. 1USD becomes 55INR.

Lets say FIIs buy stock in the Indian market. They first convert their dollars to rupees in order to buy stock. Hence rupee becomes expensive when net more rupees are bought by these people. So rupee rises to 1USD = 50 INR. Let's say all the FIIs who own stocks in the Indian market sell their stock and take the money back home - they first convert the rupees they sold it for to dollars and hence this leads to a selling pressure on rupees and hence again 1USD = 55INR.

These figures are just examples.

Now India exports around 300 Billion USD per year. China exports around 2000 Billion USD per year. So you see the huge difference. It doesn't matter what you export - as far as currency pressures are concerned.

Also China imports less than it exports & India imports more than it exports. Hence Indian currency becomes weaker and Chinese becomes stronger as compared to dollars.

But China doesn't want their currency to be strong because then it would hit their export market.
For eg. 1 USD = 10 CNY.
Now if CNY becomes stronger 1 USD = 8 CNY.

Originally let's say it cost China 200 CNY to manufacture a phone and export it - that means it cost them 20USD to manufacture. They can sell for 22 USD and make a profit of 2USD per phone. Now because 1USD = 8 CNY, if they sell their phone for 22USD, they get only 176 CNY and hence they have to increase the price of the phone in dollar terms to make the same profit as before. Hence their exports of phones goes down. Hence the Chinese govt controls the price of the CNY and increases it back to 1USD=10CNY. This makes their imports costlier but they feel the exports will more than offset the increase in imports.

Another thing to consider is that China's exports are in manufacturing - if CNY is weak and they are able to sell their products cheaper in USD, the demand increases and they can manufacture more.

A lot of India's exports are raw materials - there is only so much raw material you can export - so rupee weakening helps but not so much.

Considering garments, China exports 5-6 times as much garments as India. Bangladesh exports as much as India I think (not sure).

About software - the weakening of rupee helps Indian companies whose employees work in India - but doesn't really help Indian companies whose employees have to be paid in dollars. If India were more into the software product space as compared to software services space, it would have been good - but we don't do products(especially those that can be exported).



Not really. You are comparing the well educated population of India with the average population of foreign countries. A guy out of high school in the US can work at a McDonalds and earn close 8$ an hour and much more after a few years. Since a dollar value of a car is cheaper in the US as compared to India, he can buy a much better car as compared to 10th standard pass in India.
See below.

Maids are less affordable but not unaffordable. I used to have a maid come in once a week to vacuum all rooms, clean the bathroom, kitchen etc. It was around 30 minutes to 1 hour of work - I used to pay 30-40$ per visit. Overall it cost me 120-160$ a month. This was very affordable for me - as long as I don't convert the dollars to rupees and start comparing how much I would pay a maid in India.

Of course, having one come in every day is unaffordable. By the way, one of my maids used to drive a Civic and other used to drive a pickup.

I just googled the book-and came across this passage:

pdf: “The Road to Serfdom” – The Reader’s Digest Condensed Version « Taking Hayek Seriously

looks like the book is a bomb:)

I am going to read it!!

I guess this is a better thread to discuss ' uncomfortable truths' ,less emotionally charged and more 'rational'

I would recommend people the above site for some clear articles.

@drsingh; The original is available from Flipkart for Rs.419 all inclusive. I may have make a mistake and should have ordered the one with notes etc. for 600 odd. This book is known to be a very tough read, with stilted English to boot. I wonder whether the RD edition will clarify or mess it up.

Will download and take a look and compare.

Downloaded and scanned through it. Frightening to say the least, just too many parallels with the state in our country. The cartoons are also brilliant.

Just cannot wait for the full version to arrive.

Got my Road to Serfdom yesterday. I was away for a day even though it arrived on Monday. Heavy reading no doubt.

English is not too bad, terse and heavy going, but worth its weight in Gold.

Like the quote starting Chapter IV.

We were the first to assert that the more complicated the forms of civilisation, the more restricted the freedom of the individual must become.

Sounds too much like our mai baap sarkar. Our Socialists subscribe to it 200%.

Who said that, you will never guess, Il Duce or Benito Mussolini!

Wow, a 5 year old thread is back.

Exactly, but I have come to realise it is a difficult concept to understand without any background in economics.

I made the same argument 5 years back in this thread: http://www.team-bhp.com/forum/shifti...tml#post439310

Sir which one would you recommend? Road to Serfdom or the Road to Serfdom :Text and documents. One costs 400 odd .The latter 600 odd

We were moved to this thread from a different thread, so hadn't read all the old posts. Did so now, and it was interesting. One of old posts said "Lets revisit this thread 5 years from now and see".

Since we are talking about Hayek and the Viennese school of economics, let me also introduce David Friedman.
http://www.daviddfriedman.com/

Gives a totally new insight into the concept of anarchy, and how in anarchy all the forces balance out to yield an equilibrium, which is not much different from the imposed equilibrium (like law & order, capital-rich-poor, social norms, etc)

Anyway Laissez-faire has trumped over Keynes everytime in the history (since the birth of socio-economic structures millenia ago)