DONT LIKE/COMMENT.. GET UPDATED n JUS DO UR BIT..... ------------------------------------------------------------------------ INR is continuously falling(1$=Rs 64.55 and £1=Rs 100.60). Let’s understand this situation and as an individual what should we do to prevent this ? If every individual do their bit, it will surely help contain the INR downfall. Whenever demand for an item increases, the price of the item tends to go up and vice versa. When we import things we have to pay in USD, and when we export things we get paid in USD. When the total value of goods and services exported falls short of the total imports (this situation is referred to as “Current Account Deficit” or CAD), then the demand for the USD goes up and therefore its price also moves up. When the total value of goods and services exported exceeds the total imports (this situation is referred to as “Current Account Surplus” or CAS), then the demand for the USD goes down and therefore its price also moves down. Who benefits when the USD becomes strong? All the exporters of goods and services benefit when the USD becomes strong. Let us take an example. Infosys exports services and gets paid in USD. Let us assume that they sign a contract to export services worth USD 1 Million. When the USD becomes strong and quotes Rs 62 per USD, Infosys will get Rs 6.20 Crores for the deal. When the USD becomes weak and quotes Rs 50 per USD, Infosys will get Rs 5.00 Crores for the same deal. Therefore, when the USD becomes strong, it is actually very good for all exporters. This gives them a competitive edge which in turn could result in higher exports. If Exports start increasing and exceed imports then we have a CAS. The demand for USD will decrease and its price will also decrease. In fact China had deliberately kept its Yuan pegged at an artificially high level for a very long period to encourage exporters. Who loses when the USD becomes strong? All the importers of goods and services lose when the USD becomes strong. Let us assume that someone imports goods worth USD 1 Million. When the USD becomes strong and quotes Rs 62 per USD, they need to pay Rs 6.20 Crores for the deal. When the USD becomes weak and quotes Rs 50 per USD, they need to pay Rs 5.00 Crores for the same deal. The local industry gets a boost when the USD becomes strong as they can sell the locally manufactured goods at a higher price and still be cheaper than imported goods. But there are a lot of goods that need to be imported like Oil, Gold, Electronic goods, etc. If we can somehow restrict the quantity of imports, we can restrict the CAD and prevent the USD from becoming stronger. What can we do to help? Each and every individual can do quite a lot to help improve the situation. Below a few things: 1. Reduce our fuel consumption. Travel only when we have to. Use Public Transport whenever possible. Form car pools. Crude Oil is our biggest item of import. If we can reduce the import of this item alone by 10%, it will go a long way to contain CAD (save even a single drop of Oil). 2. Do not buy Gold or any other precious metal. These are non productive assets. The price of gold has fallen from USD 1900 per troy ounce to USD 1400 per troy ounce in the recent past. The price of gold in India too dropped from Rs 32,000 per 10 gram to Rs 25,000 and has bounced back to Rs 31,000. This bounce back is purely on account of Customs duty hike (from 4% to 10%) and USD becoming stronger (from Rs 50 per USD to Rs 64 per USD). Gold is our second biggest item of import. If we can reduce the import of this item by 20% (or even 50%), it will go a long way to contain CAD. (With Diwali coming up, people will buy more gold; and INR may hit further low. Let’s not buy gold this time) 3. Prolong the use of our Electronic goods, toys. People want to keep changing their iPhones, iPads, iPods, etc every year. They are not only ruining their own finances but ruining the Economy of India as well by increasing the CAD. If you use each of those items for twice as long, we can reduce the import of this item by 50%. It will go a long way to contain CAD. 4. If you have friends living abroad and earning in USD/ GBP/ EUR, ask them to start investing in India. 5. Use Swadeshi products as much as you can. This will help the local Industries and reduce the imports as well.
Posted on: Fri, 23 Aug 2013 06:33:19 +0000
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