BENEFITS OF STRONG CURRENCY OUTWEIGH LOSS TO EXPORTERS In the popular consciousness, a strong currency is often associated with economic strength. But appreciation in the value of a currency is also seen as a double-edged sword that hurts exporters and helps importers. Over the last few weeks, the exchange rate of the rupee vis-a-vis the greenback changed from just under Rs 45 to over Rs 40, an appreciation of roughly 8.5 per cent over less than 40 working days. The benefits of a stronger rupee are obvious: imports of petroleum, the demand for which is price inelastic and constitutes a third of total imports, will become cheaper and have a significant anti-inflationary impact. The same can be said of capital goods, which account for 12 per cent of total imports. Import growth in both these segments is above 40 per cent. In fact, as a result of a stronger rupee, oil companies have, to an extent, been insulated from the recent rise in world prices of crude oil, from $53 a barrel in January to $65 a barrel in May. There is nothing new about rupee appreciation. It would appear gradual if one looks at the 12-month period up to March – the exchange rate of the Indian currency...
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