India added 20% of Pakistan GDP in 2 days to her economy

Discussion in 'Central & South Asia' started by Indx-techs, Mar 15, 2017.

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  1. Indx-techs

    Indx-techs Captain

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    (Not my article but written by some other DFI member)
    India added 20% of Pakistan GDP in 2 days to her economy
    In last couple of days, Rupee has appreciated by 2% against USD. While people are foolishly arguing that India shall become a 5 TR USD economy in coming 10 years, I have always maintained on various forum that you guys are taking into account only Growth rate and Ignore the currency appreciation. India Rupee is valued almost 4 time lower that its purchase power and it offers a great chance of currency appreciation. In last 2 days INR has jumped from RS 66.80 a USD to 65.43 a USD which is a jump of 2% in value against USD. We need to understand what this means for us and its consequences.

    Understanding the effect on GDP.

    2% appreciation in India Rupee against USD means we have added, 2% in Indian GDP in nominal term in USD. This amounts to 2.5 Tr USDx2% is 50 bn USD which is 20% of Pakistan economy. When we struggle a lot to increase growth rate by 0.5% and people speculates whether growth rate shall be 7.1% or 7.5% so that GDP may increase in volume by same percentage and we may add to GDP in our existing level of about 2.5 TR USD. This is a straight hike of 2% in GDP nominal. 2.4 TR usd economy has just grown to 2.45 TR USD economy adding 50 Bn USD in just 2 days. This means we have further widen the Gap between UK economy and Indian economy by 2% more to whom Indian economy just overtook.

    External Debt:

    India's external debt is about 485 bn USD in March 2016 as per RBI. This simply mean that we have reduced our Debt by 2% in rupee term. This is saving of 10 bn USD while payment in Rupee which mean that we will have to Pay Ts 65000 crore less while discharging our Debt. Appreciation of 1% in Rupee value against USD saves our Rs 30000 crore which we may use for our development.

    Weapon and oil import:

    Our Oil import was 64 bn USD in 2015-16. Oil prices are rising so as the consumption. Even if I assume it to be 70 bn USD in coming year, this is a reduction of RS 10000 crore in oil Import bill and we may expect that impact of rise in crude oil price will be absorbed by appreciation in Rupee value and end user will not have to pay a price increase of Rs 1.50 per USD.

    For our weapon import, we have a plan to purchase 230 bn USD weapon in coming decade. This 2% appreciation will result in a saving of 4.6 BN USD which is about RS 30000 crore.

    Trade deficit:

    Our import is higher than the export. So Trade deficit shall narrow. We have monthly average of trade deficit between 7 to 10 BN USD. If I take it as about 100 bn USD it is a decrease in Trade deficit by 2 BN USD which is 13000 crore Rupees.

    Impact on Export:

    Obviously export has always a negative impact on Appreciation of any currency but India export is largely in IT and engineering sector etc which can easily absorb this rise. Some exports such as petroleum products which are linked with oil import and they can easily afford to ease the price as the input are also getting cheaper because of currency appreciation.

    Raising of cost effective fund:

    Recently reliance took a loan of around 700 to 800 mn USD from International market at a rate of some 2.5% interest. The greatest risk of raising fund from international market is that you will end up loosing a great amount if your currency falls. We show this happening in the case South Korea and collapsing of their economy. If Rupee starts appreciating, hedging of rupee shall be very cost effective and you can buy fund from International market at a very cheap rate which can be as low as 2% to 4%. Your servicing of debt shall be very very cheap and you can overcome the biggest factor of production which is capital in case of India.

    Conclusion:

    Appreciation is INR VS USD and other currency is a great development in India economy. After the appreciation of Rupee against USD in Vajpayee era, the economy was completely let down by foolish policies of congress and Chidambaram in particular. As Modi rightly said that it is Harvard VS Hard work. BJP government has set policies right. Rupees is by and large stable in 2 and half year of BJP government. Now Rupee has started appreciating. This will be a great achievement and a great boost to Indian economy and Rupee will head toward its correct value which should be around RS 20 a USD.


    -HariPrasad

    Currency de appreciation and inflation are two main factors to boost an economy.
    For example,
    China would be just a $5.4 trillions economy today with GDP growth but 30% extra boost to GDP is given by currency appreciation and rest by inflation.
    India meanwhile sustained same PPP growth as China's lagged due to ₹ de appreciation in last 30 years.
    Now, once again India's exports are growing faster than imports and ₹ is going up.
    India's exports to China were up 42% in January alone.
    Second, I wanna see Russia as India's new trading partner specially for natural resources because we are still not in their top 10 trade partners (we are a major investor there though, Crimea). @YarS

    Third, no pun intended to Pakistanis. I just used Pakistan as a scale to measure effect of ₹ appreciation. Ignore the thread & move on!
     
  2. Indx-techs

    Indx-techs Captain

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    Let me add,
    India's import export gap may be large but India is largest destination of Greenfield FDI Investments, even higher than US & China which patches up all our loss due to trade deficit.
    And as even now trade deficit is also declining, you can imagine about the financial power of India!:D

    This surplus huge capital can be invested anywhere to buy out international influence. A similar way China could invest billions overseas.
    And as India's manufacturing is no longer driven by naturally domestic consumption only but exports too, artificially boosted by government, it's going to up much faster than before (it wasn't slow in past either though).
     
  3. Indx-techs

    Indx-techs Captain

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    Analysts had expected Rupee to cross 70; it is now among best performers in Asia

    [​IMG]

    Around this time last year analysts and currency experts were betting for Indian Rupeeto be one of the worst performers globally. They expected Rupee to cross Rs 70 to a dollar by December 2016.

    However, as it turns out, NSE Nifty hit its all-time high on Tuesday March 14, 2017 and Rupee reached its 11-month high against the dollar.

    How did this happen?

    On March 11, 2017, results of state elections were announced where Prime Minister Narendra Modi-led BJP won majority in India's largest state -- Uttar Pradesh. This is signficant in many ways as BJP, although, has a majority in the Lok Sabha, it is severely stunted in Rajya Sabha.

    Analysts expect that with the win in UP and Uttarakhand, apart from good performance in Manipur and Goa, the party will finally see a majority in Rajya Sabha making it easier to pass key legislation.

    Naturally, markets were buoyed by the election results and surged on Tuesday morning.

    [​IMG]

    On Tuesday, rupee appreciated against dollar and was trading at 66.175 – a level which was last seen in April 2016.

    Many analysts believed that because of various macro economic factor like Brexit, Donald Trump's becoming US President, US Fed rate hike and India's GDP growth will put pressure on Indian Rupee so much so that it will reach over 70-mark by December 2016.

    A Deutsche Bank research report last year said that rupee is expected to see further depreciation in coming months and may reach 70-level by December 2016 and cross 72.50-mark by end of 2017.

    The report cited US Fed monetary policy in 2017 and India GDP performance as main reason.

    UK's Brexit vote did threw rupee to 67.914-mark against the dollar and demonetisation followed ty Trump's win weakened rupee further to 68.78-level.

    In November 2016, rupee depreciated by 3.44%.

    HDFC Bank in its report dated June 2016 had said, “An adverse global risk environment on the back ‘Brexit’ concerns in the near-term followed by the prospect of tighter US monetary policy and concerns about the Chinese economy is likely to restrain fund flows into the domestic markets.”

    The bank expected rupee to be in the range of 68.50 to 69.50 to a dollar by end-2016, with dollar strengthening as investors tend to run for safe havens every time there is a scare in global financial markets.

    Analysts said, “After demonetisation, there is expected to be a deceleration in growth and GDP is expected to come down due to which some money has already moved out and more is on the way. "

    However, rupee's performance has been anything but as expected.

    [​IMG]

    Care Rating, in its research report, said that rupee has been a relatively better performing currency against dollar.

    From the month of October 2016 - January 2017, Indian rupee has only depreciated by 1.94% against dollar, whereas euro fell by 3.56%, Japanese yen by 10.54%, China Yuan by 2.39% and Australian dollar by 1.94%.

    Care Ratings added, "While the near term forecast would be around Rs 67/$, the rupee may on balance move towards the 69 mark towards the end of FY18 with there being an incentive to let the rupee find its level to support exports at a time when they would be increasing."

    http://www.zeebiz.com/india/news-an...it-is-now-among-best-performers-in-asia-13568
     
  4. Indx-techs

    Indx-techs Captain

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    Indian rupee breaches 64 mark; trades at highest level since Aug 2015
    We expect the spot USD-INR pair to trade in a range of 64-64.40/dollar today, says Pramit Brahmbhatt of Veracity.
    [​IMG]
    Moneycontrol News

    Indian rupee increased its initial gains and breached the 64 mark against the US dollar. It was trading 63.99 a dollar, the highest level since August 10, 2015.

    It has opened higher by 7 paise at 64.19 per dollar today versus 64.26 Tuesday.

    Pramit Brahmbhatt of Veracity feesl the rupee can breach the stiff resistance of 64.20/dollar and may head higher.

    He expects the spot USD-INR pair to trade in a range of 64-64.40/dollar today.

    The US dollar surged against the Canadian loonie after the United States imposed duties on Canadian softwood, while the dollar hit a two-week high against the yen on greater risk appetite.
     
  5. Indx-techs

    Indx-techs Captain

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    So,
    $1 = ₹63.97 now
    Means our foreign debt reduced by ₹141200 crore.
     
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