Rupee is seen volatile and it does affect investor sentiments. And out market is running mostly on sentiments. Modi’s and RRR’s fight against inflation is somehow hurting the lower class. We see negative wholesale inflation but the prices we pay to buy goods hasn’t changed significantly. On the contrary daily waged labourers are not getting the hikes because the inflation is cited low. In addition the rupee volatility has kept the investors nervous and has led to investment withdrawal.
If we see our history we are mostly a import driven country. So when we want to import we will need a strong rupee , which is quite obvious. So the more we imported with a stronger rupee signified our economic strength. Modi supports a strong rupee and because he might think that a strong rupee means a strong economy.
Unlike China which kept it currency undervalued to promote export Indian sentiments don’t agree to it. We never were an export oriented economy so there was no reason to promote a weak rupee. We loved a stronger rupee because we imported oil. lots of it. And because of the fall in crude prices out import costs have come down. this is allowing us to cover our balance of payment. Export of GnS was around 25% of GDP. Modi wants to make India a manufacturing hub,( i hope we dont turn a pollution hub) but the bad infrastructure and tax regime is hurting the dream . Modi has cut short the red tape but still it is on the longer side. having a strong exchange rate hurts. Rupee barely depreciated 5 % to dollar , whereas dollar gained 25 % with euro. This does give us more opportunity to depreciate further to attract investors from Europe and Japan.
This lead to a heavy fall in exports because of the stronger rupee compared to other currencies like Bpound and yen. This may cause problem with our balance of payment but the reduced crude prices have also lowered import costs as stated earlier.
Rupee unlike 2013 when it fell to 70 is standing strong t 63. This means there is still a margin of 7 ruppes we can handle. Imports no doubt will become expensive but low crude is saving the skin. there is IT boom. Also it it will curb Indian love for gold as imports will now be more costly. So let us not worry about a depreciating rupee , it is a joint package with export economy.