The US dollar's drastic gain on the Indian Rupee will make imports expensive and exports cheaper. But what effect will it have on inflation and on key sectors like manufacturing, technology and tourism? What will be its domino effect on employment numbers? If FIIs (Foreign Institutional Investor) pull out their money, FDI (Foreign direct investments) is also going to be affected. CNBC-TV18's banking editor Latha Venkatesh joined IBNLive readers for an interaction on the issue.
Q. Is the Exchange rate mechanism purely driven by supply and demand position? Any scope exists for manipulation by vested interests? Asked by: sundar1950in
A. It is largely driven by supply and demand. On occasions there can be excessive speculation. Manipulation is difficult. It's quite a large market. No one player is so significant. Sometimes the RBI (Reserve bank of India) can manipulate it, by selling or buying dollars. But even their power is limited.
Q. Who is to blame RBI (Reserve bank of India) or government? Asked by: Shyam Vadalker
A. For what?
Q. This time around RBI (Reserve bank of India) has not done much of intervention to arrest the slide, which has been steep ? Asked by: sundar1950in
A. Yes. The RBI (Reserve bank of India) seems inclined to let the market correct itself.
Q. It was being told for past few days that Rupee has been over living it's existing value and it is supposed to fall to 70 per dollar. How far is this correct? What are the factors which can drive it? Asked by: Thumma
A. It is tough to give a correct value like 60 or 65 or 70. The rupee can weaken a little more from current levels of 60, but experts mostly believe rupee will veer back to 60 on an average this year. Factors which drive the rupee are exports, cost and amount of our imports, FII flows etc.
Q. Ma'am is fiscal deficit and rupee value directly related? If so, the populist schemes are government are also partly to blame for the Rupee fall? (in general if not at the current moment of this steep fall). Asked by: kartheek
A. You are 100% correct. Populist schemes funded by printing money increase purchasing power and lead to higher consumption, and higher imported goods consumption. Higher fiscal deficit increases inflation, makes Indian exports uncompetitive; higher inflation means rupee buys fewer goods in India and fewer dollars as well.
Q. Is it not natural for Rupee to depreciate by the difference in rate of inflation in USA and India? Asked by: Sameer
A. Yes. But not just US. It is Indian inflation versus the inflation of its 6 major trading partners. This covers about 90% of the import-export transactions.
Q. How do you see the Indian economy's position right now? Do we have adequate reserves? It was also pointed out by Raghuram rajan that with too many regulations investors are not satisfied. Asked by: sree
A. Yes Rajan has a point. Our rules, sometimes unnecessarily harasses foreign investors. A lot of files move only on bribes. We do have decent reserves. But that is not a permanent answer to supporting the currency. Ultimately, our exports have to be more than our imports. For that we have to be competitive. We have to produce goods more efficiently than others.
Q. What will be the impact on CAD (current account deficit), Fiscal Deficit, FIIs (Foreign Institutional Investor), FDIs ( Foreign direct investments), GDP and more importantly Inflation. Governments promises of bright future just remained a promise. What concrete measures should government take to regain the hopes of double digit growth rates? Asked by: Thumma
A. Growth comes from honest sincere work, from governments not spending more than they earn by way of taxes, from clearing files quickly and honestly, from the judiciary clearing cases quickly, form politicians, bureaucrats and citizens being uncorrupt. This is at once easy and difficult to achieve.
Q. How do you explain that US which has printed trillions of dollars in a scheme called "Financial easing" is still able to keep its currency stronger and inflation lower where India's currency is going down the drain and inflation running rampant? Asked by: pirabukannan
A. Very good question. India also prints a lot of money. We don't openly call it quantitative easing. We call it OMO (open market operations). Secondly, US dollar printing will also lead to inflation the moment bank loan growth and economic growth picks up. That is why the US Fed is talking about ending quantitative easing.
Q. Ma'am, Is it time to agree that bad politics are pushing our economy down and ask our politicians to help in building our country? Asked by: Independent
A. That's perennially true. They have been asked a million times. They don't oblige.