With the ever-increasing capital inflows, robust growth of industries and dollar depreciation, the Indian rupee is on a roll. However, a strengthening rupee is hurting exports as domestic goods and services become costlier and, therefore, uncompetitive. On the other hand, countries with whom India competes have seen a lower appreciation of their currencies, and this will give an edge to them. Thus, the rupee is experiencing conflicting interests. On the positive side, because of the rupee appreciation, the country is witnessing higher capital inflows. However, it is also pushing the country's trade deficit at record levels. Against these developments, the Indian currency is increasingly seen as overvalued on trade-weighted on real effective exchange rate terms. Besides, it has appreciated only against the US dollar with which the country's foreign trade is mainly involved. If the rupee continues to strengthen, it will also have a negative impact on the country's balance of payments.
According to the World Bank, "The effect of the rupee's appreciation is not marginal, imports account for about 16% of India's Gross Domestic Product (GDP). Importers, borrowers in foreign currency and the average Indian consumers are the unambiguous gainers from the rupee's appreciation." However, the rising rupee value against the US dollar is a cause of concern for any export-driven industry. India's domestic Information Technology (IT) industry accounts for 60% of exports. Moreover, technology companies derive a large chunk of their revenues from the US market and get their billing carried out in dollar terms. Since rupee appreciated a seven-year high against the dollar, it is bound to show impact on these companies' revenues, and even shareholder values. |
