Appreciation of rupee would make imports cheaper and as such it would be cheaper to buy goods from abroad. Petrol should be cheap and so would be gold. Food items which are scarce in the country like pulses, edible oil etc. would get cheaper. All this may send a negative impact on agriculture and industry in the country, for which we may have to make fiscal adjustments.
How to take the benefit of appreciating rupee
First of all those who feel appreciating rupee is a curse should change their opinion. Our commerce minister says that strengthening rupee would send a negative impact on exports. When he says so, he seems to be echoing the historical argument in favour of devaluation of rupee. Exporter had always argued that more and more of devaluation of rupee is the only way to increase exports. Accepting such arguments, rupee was devalued in 1966 and later in 1983-84. Since then rupee has depreciated from rupees 7.80 in 1983 to rupees 49 by mid 2002. But despite depreciating rupee the rate of growth of our exports has always been less than the rate of growth of our imports. If we think in terms of economic principles, under such circumstances appreciation of rupee rather than depreciation of rupee is the only way to reduce our trade deficit. More important is the fact that recent appreciation of rupee is not due to government'sintervention but due to forces of the market. Supporters of globalisation have always been in favour of free market forces. Why are they arguing for restricting this tendency though RBI'sintervention is beyond comprehension?
Government can take advantage of appreciating rupee
Due to appreciating rupee, people all over the globe, are getting attracted to this currency. It is obvious that now since dollar is depreciating vis-?-vis rupee, people would prefer to keep rupees, instead of dollars. Under such circumstances government, is working fast on a scheme to issue rupee dominated international debt. In the past, official debt as well as commercial borrowings both were repayable in terms of dollars. Not only government can take the benefit of borrowing at cheap rate of interest, but Indian companies can also borrow internationally at cheap rate of interest by issuing rupee dominated debt. The proposal has been mooted by the Department of Economic Affairs, Ministry of Finance and is being discussed by policy makers at a higher level. There are many other advantages of issuing rupee dominated debt. One, there would not be any unwarranted expansion of money supply despite borrowings from abroad. Two, there would not be any currency related risk because loan would be repayable in rupees. Three, there would not be any risk of large scale flight of capital in the event of fast upheavals in exchange rates. Infact now the risk of upheavals in the exchange rates would be borne by foreign investors. Four, government companies and private companies may now have the facility to borrow at a lower rate of interest and as such this would help us in keeping the rate of interest low in the economy. Global rating agency-Standard and Poors have increased India'ssovereign credit rating to investment grade (BBB) from speculative rate (BB+). Experts feel that due to this improved rating the country has become attractive to a range of global investors. This would help the government to raise debt at highly competitive rates.