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Originally Posted by shankar.balan 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! |
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).
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Originally Posted by sunishsamuel If emigration is about affording a few basic luxuries of life and technology - If you actually look at affording things, for eg: a good house, latest TV, a reasonably good car etc., i think we are on par with Foreign countries (or very close). |
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.
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Originally Posted by adits 1. Convinience and comfort of having servants is no doubt good to have but I view that the fact that you could not afford a servant in Canada as a way that teaches you how to survive on your own. IMHO an important lesson in life. |
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.