A new lower range for the Indian Rupee vis-a-vis Global Currencies?

 Economists are talking about a hard landing for the US economy and the impact will be heard everywhere around the world. With the Fed signalling tightening of interest rates we can expect further flight of capital in the coming year or so. From an emerging markets perspective, there will be severe downside pressure on their currencies.

In this context, we must note that, contrary to popular perception a depreciating rupee is not always bad for the economy. Yes, there is short term pain in terms of spill over effects of high priced fuel imports on inflation and therefore the impact on common people. The inflation rate for the full year is expected to be well above  6%. And let's face it India has sufficient forex reserves to tide over any balance of payments situation quite comfortably.

From the perspective of energy needs, our government has taken up strategic initiatives to increase fuel imports from Russia at costs, that are significantly lower to the market price. The key lies in passing on some of the benefits to the end consumers. Moreover there is increased impetus on usage of alternative fuels in the wake of increased awareness of climate change effects. 

The announcement of national logistics policy and increase in infrastructure spending must transform into faster movement of men and material across the country. At least theoretically, this should encourage people to use 'best-in-class' public/(privately managed) common transport rather than private vehicles.

One of the main reasons for the establishment of China as a global export hub is the pegged yuan against the dollar. Over the decades, China has used fixed exchange rate regime to artificially maintain a lower foreign exchange rate  against the dollar to promote its exports. If the world is looking at India as an alternative under the China + 1 strategy, then a depreciated rupee would definitely help in promoting India's exports and domestic employment.

Textbook economics tells us that export growth can be achieved by well directed capital expenditure,increasing labor productivity and increase in research and development expenditure. All of these alternatives are more structural in nature and involve significant investment and time lag. As such, a depreciated rupee would not hurt.

And last but not the least don't  forget Indians' love for gold imports. A depreciated rupee would discourage gold imports and promotion of other gold investment avenues such as gold-etfs, sovereign gold bonds, digital gold etc.

So why not view this crisis as an opportunity and move to a gradually calibrated lower range for the Indian rupee vis-a-vis dollar and other global currencies !?

Inputs from Project Syndicate, Business Standard, Times of India, DSIJ amongst other publications.