[v1p3r]

Originally Posted by lurker

As for exports of price-sensitive commodities, the entrepreuners who want to make profits will just scale-up and make similar profits. That is the choice of the trader how he wants to operate. A whole economy cannot be held ransom to the wishes of an exporter who wishes to keep his exports at low level and yet earn fabulous sums of money when converted into rupees.

That idea is an insult to the citizens of the country.

The rupee has been devalued atleast thrice, if my memory serves me right. In 1966, when Indira Gandhi first became PM. Then again on the 1st of July, 1991, under Dr Singh. Then two days later, on the 3rd.

[lurker]

Whenever WB or IMF agree to bail India out, they ask the Indians to devalue their currency. This makes Indians weaker and reduces their purchasing power.

More importantly this makes the people more vulnerable to large corporates who manipulate the country through back-door.

About Manmohan Singh and his devaluation of Indian currency plz read what Dr. Ashok Mitra (Chief Economic Advisor to Indira Gandhi) has written in his book about him.

[RX135]

Originally Posted by Samurai

Sorry RX135, this is nothing but feel good speech. I have gone through this conundrum too many times. Unless you are a monopoly or happen to provide a value that nobody else can provide, you have to consider costs. Your price depends on your costs. No point providing a great value while making loss.

I am not too sure about other fields, but at least in IT, I have seen this working well. Even with higher rates (read higher costs), you can get lucrative business, provided you can provide guaranteed value to the customer. At this very moment, China is much cheaper to work with, but still many IT companies are focusing on India due to this aspect. Eventually, China will catch on India unless India makes "value proposition" as its USP than "cost proposition".

[sbasak]

A whole economy cannot be held ransom to the wishes of an exporter who wishes to keep his exports at low level and yet earn fabulous sums of money when converted into rupees.

That's an interesting point. Compare this to a similar scenario in developed world.
Nowadays many places in Europe/America, companies are downsizing and shifting jobs to India because of cheaper cost.
If the govt. of those countries (say USA, UK etc.) devaluate $ or £, Indian labor won't be cheap and those people can be retained at their jobs.
But USA or UK govt. are not doing that? Mostly because they see the economy as a whole. Then why do we do the same in India?

[rohitbagai]

First of all we can not compare our economy with that of developed economies like USA, UK or Japan. Those governments there don’t intervene in currency fluctuations directly but RBI does. Secondly the purchasing power parity (ppp) decides what a cheaper cost is and what’s not and not the currency rates alone. Let me explain what impact it has. For example to keep things simpler the ppp is at 10. It means that an item worth $1 is actually equal to Rs.10 in India (take for example Pepsi Can). But the exchange rate is at Rs. 40. So when US buys $1 worth of goods from India its actually buying goods worth $4.00. This in itself is a cost advantage. Now what happens is that inflation in India is suppose at 10% so the impact on input cost of our exporters suppose if same is 10% so the cost of finished product also increase by 10% (I am keeping things simpler here you can assume ‘other things remain same’). The same item that we use to buy for Rs. 10 will now cost Rs.11. So when US buys $1 worth of goods they will get $3.63 worth of goods which is lesser than what they used to get.
Now why does RBI intervene to devalue?...its because govt. does not want to loose that PPP advantage it has. If the Rupee gets devalued to 44 It will be same situation as before and we will be competitive back again.

[spadival]

Has anyone heard of the Asian currency crisis or George Soros from the 90? ..well, this chap made most of the paper tiger economy of the far east countries lose their shirt by betting against their currency.

We are relatively safe because most of our companies don't borrow from outside. Those companies which do will be the first ones to get screwed. Next in line are the ones that majorly export to the US, i.e. our IT companies which are spending on manpower and real estate like there is no tomorrow.

[headers]

Originally Posted by lurker

No it's not. It directly reflects the purchasing power of the common citizen, who is currently at the wrong end of inflation due to the fact that certain entrepreneurs in the IT/VITY sector are encouraging govt to pump more rupees so that they can retain their profit-ratio.

Your profitability will remain same, since purchasing power of rupee shall go up in medium term. Cost of goods shall come down. And there will be parity in what you pay your employees, in short the goods & services that they are able to buy with small amount of Rupee will also be same as before when Rupee was devalued.

As for exports of price-sensitive commodities, the entrepreuners who want to make profits will just scale-up and make similar profits. That is the choice of the trader how he wants to operate. A whole economy cannot be held ransom to the wishes of an exporter who wishes to keep his exports at low level and yet earn fabulous sums of money when converted into rupees.

Can you suggest, how, we could CUT salaries of our employees, while what you suggest is only a DREAM.

Logically it is nice..but practically, you just can scale up and make profits..there are a lot more issues to it!

Export is promoted by the Country, there are a lot of concessions an industry gets if they export. WHY? Because the government wants us to EXPORT..

ANd in exports too..There is an international price to which you need to sell..and not the other way around..

[Samurai]

Originally Posted by lurker

This narrow mindedness passes off as the "need to have a weaker rupee". A few million in IT/VITY want to prosper at the cost of the millions of non IT/VITYians by fostering inflation and increased strength of the dollar.

Originally Posted by lurker

Yes they do, prices of fuel, and every other imported commodity will go up with falling rupee.

Originally Posted by lurker

Your profitability will remain same, since purchasing power of rupee shall go up in medium term. Cost of goods shall come down. And there will be parity in what you pay your employees, in short the goods & services that they are able to buy with small amount of Rupee will also be same as before when Rupee was devalued.

As for exports of price-sensitive commodities, the entrepreuners who want to make profits will just scale-up and make similar profits. That is the choice of the trader how he wants to operate. A whole economy cannot be held ransom to the wishes of an exporter who wishes to keep his exports at low level and yet earn fabulous sums of money when converted into rupees.

That idea is an insult to the citizens of the country.

Yesterday I gave up on this argument. But since you have acused me of narrow mindedness, holding country to ransom and insulting fellow citizens, I want to clarify some things.

Recently Rupee has become stronger by 8-10%. But I haven't seen any corresponding drop in my operating expenses, I still pay same rent, same salaries, same utilities (phone/electric/internet) charges. In fact I had give annual hikes to everybody in April. My costs actually went up by 20%. Unlike your assumptions, I operate in a highly competitive field, my profits are quite thin. Slightest variation in dollar affects me. Please tell me how my costs are going to reduce since dollar has weakened.

[headers]

I'm with you Samurai..We need to know the secret of reducing our input costs dynamically with the fluctuating Rupee

Then maybe some fellow citizens might not be insulted!!

[lurker]

Originally Posted by Samurai

Yesterday I gave up on this argument. But since you have acused me of narrow mindedness, holding country to ransom and insulting fellow citizens, I want to clarify some things.

Recently Rupee has become stronger by 8-10%. But I haven't seen any corresponding drop in my operating expenses, I still pay same rent, same salaries, same utilities (phone/electric/internet) charges. In fact I had give annual hikes to everybody in April. My costs actually went up by 20%. Unlike your assumptions, I operate in a highly competitive field, my profits are quite thin. Slightest variation in dollar affects me. Please tell me how my costs are going to reduce since dollar has weakened.

This is because you have not adjusted to the new rates and are going by by historical rates, in short you are still under spell of old M3 policy of the Govt. in medium term your costs will definitely come down. You will have to wait for the squeegee to suck up excess liquidity and the proportional decrease of salaries and expenses will be slower.

Those who can't adapt to this change shall be weeded out of the market.

But since you have acused me of narrow mindedness, holding country to ransom and insulting fellow citizens, I want to clarify some things.

Aiy aiyyoo...I have not accused you of anything. Just IT/VITY sector who wants to impose a skewed currency regime on the country. Without realizing that it will affect capital investment due to their short-sightedness.

Infosys chairman will take the easy way out, he will stop singing national anthem and will escape to another country. But the rest of the professionals might not have it so easy.

[Samurai]

Originally Posted by lurker

This is because you have not adjusted to the new rates and are going by by historical rates, in short you are still under spell of old M3 policy of the Govt. in medium term your costs will definitely come down. You will have to wait for the squeegee to suck up excess liquidity and the proportional decrease of salaries and expenses will be slower.

Well, you are still talking policy. Tell me how to do it. Like any company, my biggest cost is salaries. The job market is extremely hot, salaries are still shooting upwards. How can I reduce it, salary cuts, downsizing? Last year I even moved my company from Bangalore to a tiny coastal town to save costs.

Sorry, I have no use for theories here, give me practical tips.

Ok, this forum is swarming with software engineers. I want to know how many of you are willing to undergo 10% pay cut since rupee has appreciated by that amount?

BTW, the cement & steel prices that were rising constantly last year have held steady last few month, but no reduction. The stone price is actually going up in my area. Therefore, the housing cost has gone up. The home loan and auto loan rates are going up. Even the restaurants in my area have jacked up their prices by 20% starting April. The 10 rupee bhelpuri is now 12 rupee. Therefore the living cost has actually gone up. All these are completely out of sync with current forex variations.

[lurker]

Originally Posted by Samurai

BTW, the cement & steel prices that were rising constantly last year have held steady last few month, but no reduction. The stone price is actually going up in my area. Therefore, the housing cost has gone up. The home loan and auto loan rates are going up. Even the restaurants in my area have jacked up their prices by 20% starting April. The 10 rupee bhelpuri is now 12 rupee. Therefore the living cost has actually gone up. All these are completely out of sync with current forex variations.

Originally Posted by Samurai

Sorry, I have no use for theories here, give me practical tips.

Given this scenario, short term trends for you indicate a bit of pain. A reason for the inflationary scenario was due to govt introducing excess liquidity in the economy to allow dollar values to remain. This excess liquidity in the economy caused inflation. Excess liquidity was also introduced due to the practice of giving cheap loans to all and sundry.

Once inflation struck, all overnight operators including cartels like cement, fuel etc pounced upon opportunity to increase prices to the level that had no bearing on their increase in costs.

So salaries of your employees might not go down, but other variables will show downward trend in medium-long term. This will decrease your input costs and show a profit. In the median how you manage your finances depends on how you have planned for contingencies and your bandwidth to tolerate price shocks.

In Agricultural sector there are other variables, the govt has not prevented companies like Reliance from hoarding vegetables, fruits and processing them for exports. Prices of fruits like grapes, apples that have been cornered by corporates for selling in their retail chains are soaring sky high. They are easily able to manipulate prices due to availability of cheap finances from financial corporations and international lenders.

But when India goes to the international market to import pulses, fruits, vegetables suddenly price of all these commodities in international market goes up causing inflation to rise. The Govt and its financial wing must be more resolute in taming the tendencies of corporate players to cause price shocks.

Reliance sells fruits, veggies very cheaply in its stores but causes artificial shortage in the mandis since it procured veggies, fruits directly from the farmers. Recently the Govt stopped Reliance from procuring directly from farmers and asked them to procure from wholesalers, this curbed prices finally.

Futures markets for commodities is also another giant swindling organization for manipulating prices of cereals, pulses where a lot of middlemen jack up prices of all commodities.

This is the reason why your bhelpuri man is charing more for this bhelpuris.

[tsk1979]

Whoa ! Some serious BS being thrown in here. I am no economist, but playing in the stock market, international and national has taught me a few things.
First lets debunk the myths here
1. A strong Rupee means a strong economy, low prices, more purchasing power. A weak Rupee means a weak economy. A weak Rupee means strong exports and hence strong economy
2. Prices go up on a weak rupee, prices go down on a weak rupee, etc., etc.,

If things were so simple we would not need any finance ministers or RBI with its army of followers.

Now lets see what 1:40 means. Does this mean a $ has 40 times purchasing power of rupee? No way. Read up on something called Purchasing power parity : A dollar is around 4-5 times.

Secondly the angle brought around here is that a strong rupee will reign in inflation and mean strong economy, or the opposite.

Neither is true. The value of rupee is not a cause, its more of an effect. Yes sometimes artificial devaluing is done to nudge the economy and balance cash flow, but mostly its market after you have full convertibility.

Rupee has gained 15% over a couple of months, do we see negative inflation?

Pound sterling is the most expensive currency today. Is Britain's economy anything to harp about. That country is in shambles with people out of jobs, poverty rearing its head there, social collapse when the social security mechanism cannot take any more.

Now lets talk about the yen, when japan's economy was at its boon, you could get 3 yens to a rupee. Yet Japan was much ahead in standard of living.

Having a strong rupee has direct effect only on exports and imports. On everything homegrown, its more or less a number.
As the rupee has weakened, incomes have grown. So the effect does not pinch. Yes digital cameras and other imported items will get more expensive, but a economy which exports more than it imports will always be stronger in the long run.

Somebody brought up the stock market. Well if you look at a graph(you don't have to exercise your brain, yahoo will do it for you, there is not much correlation between BSE and Rupee. Yes lot of correlation between NSADAQ and BSE, but sorry, nothing to do with Rupee here

As for IMF and other fund conspiracy theories, please grow up. Its beyond the nineties. IMF is so irrelevant that even latin american countries are leaving it.

Welcome to the new world of free trade, where the market will balance out things.

IT/ITES cheap so high salaries, well as rupee grows stronger, there will be a balancing act, and flow of jobs to india will slow down. All happens in free trade. The market finds balance.

If you want to look up things stay away from wikipedia, and pick up a book. No wikipedia and web is not inaccurate, the reason is there are so many multiple schools of thought and no one school is absolute truth.

Thats why I said both camps are talking myths.
In Economics there are schools of thoughts not absolute truth. Like Communism vs Capitalism. Histroy books are written by winners, thats why Capitalism is sold as some divine thing, but if it was other way round we will be reading more about wonders of Communism.

[lurker]

Originally Posted by tsk1979

Whoa ! Some serious BS being thrown in here. I am no economist, but playing in the stock market, international and national has taught me a few things.
First lets debunk the myths here
1. A strong Rupee means a strong economy, low prices, more purchasing power. A weak Rupee means a weak economy. A weak Rupee means strong exports and hence strong economy
2. Prices go up on a weak rupee, prices go down on a weak rupee, etc., etc.,

If things were so simple we would not need any finance ministers or RBI with its army of followers.

Now lets see what 1:40 means. Does this mean a $ has 40 times purchasing power of rupee? No way. Read up on something called Purchasing power parity : A dollar is around 4-5 times.

Secondly the angle brought around here is that a strong rupee will reign in inflation and mean strong economy, or the opposite.

Neither is true. The value of rupee is not a cause, its more of an effect. Yes sometimes artificial devaluing is done to nudge the economy and balance cash flow, but mostly its market after you have full convertibility.

Can you provide data on inflation pre-1990's and post 1990 to back up your claims ??

What was the percentage of inflation before rupee devaluation and post devaluation.

[headers]

well tsk..that is some EXCELLENT post..keep it up!