Tuesday, October 7, 2008

How China manages their Currency Appreciation and industrial growth?

Why Governments and industries in India wolf cry for rupee depreciation? Instead it should aim for rupee appreciation.

In fact rupee depreciation benefits few people (papaus, exporting industries, people living outside India etc) but if it appreciates the masses get benefits from importing goods and services.

Mr V. Anantha Nageswaran writes in Mint “In 2008, India’s nominal trade-weighted exchange rate has depreciated by more than 12% whereas that of the Chinese currency has appreciated by nearly 10% (source: Bank for International Settlements). Whether by choice or default, the Chinese currency is headed in the right direction whereas the Indian rupee is headed in the wrong direction”.

Interestingly he says that “there is little to be gained by keeping the rupee weak. In any case, the sensitivity of India’s exports to the rupee exchange rate is smaller than that of its imports to domestic growth. Further, India’s exports contribute little to GDP compared with domestic demand factors”.

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