Comments on: Is The Indian Rupee Overvalued? http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/ Issues & insights Thu, 20 Nov 2008 18:14:04 +0000 http://wordpress.org/?v=2.6.1 By: aditya http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-231610 aditya Fri, 12 Oct 2007 09:22:36 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-231610 hi....statements of various authorities like sonia gandhi,chidambram,,puts an admirable effect on inflow of FII'S. hi….statements of various authorities like sonia gandhi,chidambram,,puts an admirable effect on inflow of FII’S.

]]> By: savio http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-3759 savio Mon, 22 May 2006 10:42:20 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-3759 can someone explain in lay mans terms about how the rupee is valued,2) how does one decide that the rupee is 45 to a dollar3)what happens when we appreciat or depritiate our currency. can someone explain in lay mans terms about how the rupee is valued,2) how does one decide that the rupee is 45 to a dollar3)what happens when we appreciat or depritiate our currency.

]]> By: aarti http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-1493 aarti Tue, 27 Dec 2005 13:16:59 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-1493 hi deep! In your comment on 0ct 13, you said that since rupee is partially convertible, RBI can do independent monetary policy while also targetting the REER. does this have anything to do with the impossible trinity? can you elaborate more. What does this say about the valuation of the rupee hi deep!
In your comment on 0ct 13, you said that since rupee is partially convertible, RBI can do independent monetary policy while also targetting the REER. does this have anything to do with the impossible trinity? can you elaborate more. What does this say about the valuation of the rupee

]]> By: rashmi http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-1475 rashmi Sun, 25 Dec 2005 16:24:51 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-1475 The biggest concern in the context of long-run exchange rate stability is the massive public debt and persistently high fiscal deficits. Something that may prop the rupee up however is the dearth of investment opportunities available to international savers. Capital inflows are discretionary however, and many emerging markets are competing for the attentions of the FIIs. There is no need to expect a decline in capital inflows: quite the opposite in fact. However policy makers would be wise to not take these inflows for granted. As an example, the recent move to impose hiring quotas on the private sector may reduce expected returns all around and should certainly be nipped in the bud. Is it too much to ask, given the slow pace of divestment and the many hurdles to privatization of PEs, that the public sector at least stay out of the way of the private sector? It is not just the act of imposing private sector quotas, but the attitude it symbolizes, that is damaging. The biggest concern in the context of long-run exchange rate stability is the massive public debt and persistently high fiscal deficits. Something that may prop the rupee up however is the dearth of investment opportunities available to international savers. Capital inflows are discretionary however, and many emerging markets are competing for the attentions of the FIIs. There is no need to expect a decline in capital inflows: quite the opposite in fact. However policy makers would be wise to not take these inflows for granted. As an example, the recent move to impose hiring quotas on the private sector may reduce expected returns all around and should certainly be nipped in the bud. Is it too much to ask, given the slow pace of divestment and the many hurdles to privatization of PEs, that the public sector at least stay out of the way of the private sector? It is not just the act of imposing private sector quotas, but the attitude it symbolizes, that is damaging.

]]> By: amitabh http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-492 amitabh Fri, 21 Oct 2005 02:00:31 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-492 A non industrialized country with a small traded sector (exports are about 12% of GDP), cannot really run a large current account deficit except to the extent that it can get FDI. Until the country gets a large amount of FDI, it will have to run close to a trade balance - which means that the value of the rupee should reflect the price level of *traded goods* with india's trading partners. The Big MAC index is a measure of non-traded inputs (rent, transport, electricity) and therefore not particularly relevant. A non industrialized country with a small traded sector (exports are about 12% of GDP), cannot really run a large current account deficit except to the extent that it can get FDI. Until the country gets a large amount of FDI, it will have to run close to a trade balance - which means that the value of the rupee should reflect the price level of *traded goods* with india’s trading partners.

The Big MAC index is a measure of non-traded inputs (rent, transport, electricity) and therefore not particularly relevant.

]]> By: TTG http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-457 TTG Tue, 18 Oct 2005 06:59:26 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-457 Don't know enough about whether the Rupee is over-valued or not - but wanted to add that you the Big Mac equivalent thing holds no value. The whole reason the Economist doesn't include the Rupee, is because the Maharaja Mac is not the same as a Big Mac. The Big Mac conatins beef patties, the Maharaja Mac (used to be goat-meat) and is now chicken. No, I'm being serious here - because of this, you can't compare the price of a Maharaja Mac to the Big Mac (different inputs, different cost). So that Big Mac equivalent thing doesn't really hold... Don’t know enough about whether the Rupee is over-valued or not - but wanted to add that you the Big Mac equivalent thing holds no value. The whole reason the Economist doesn’t include the Rupee, is because the Maharaja Mac is not the same as a Big Mac. The Big Mac conatins beef patties, the Maharaja Mac (used to be goat-meat) and is now chicken. No, I’m being serious here - because of this, you can’t compare the price of a Maharaja Mac to the Big Mac (different inputs, different cost). So that Big Mac equivalent thing doesn’t really hold…

]]> By: IndiaStockBlog.com http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-451 IndiaStockBlog.com Sun, 16 Oct 2005 21:20:35 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-451 Hi Prashant, Thanks for linking to this article, and thanks for the trackback (wouldn't have found your blog otherwise). We've syndicated some of the thoughtful comments of your readers back at the original article, http://indiastockblog.com/article/3556 Please email us if there are any issues. Seeking Alpha editors Hi Prashant,

Thanks for linking to this article, and thanks for the trackback (wouldn’t have found your blog otherwise).

We’ve syndicated some of the thoughtful comments of your readers back at the original article, http://indiastockblog.com/article/3556

Please email us if there are any issues.

Seeking Alpha editors

]]> By: radesh rangarajan http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-446 radesh rangarajan Fri, 14 Oct 2005 12:47:39 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-446 i had been going through this recently during some research ( http://www.cia.gov/cia/publications/factbook/geos/in.html and also http://www.cia.gov/cia/publications/factbook/geos/us.html )and i think this holds the key to a fresh look at your question. To look at some of the factors that normally impact exchange rates: 1. The current account deficit of the US is $ 680 Billion . India's is a + balance of $4.87 Billion 2. Trade US Total exports and imports - $650 Billion and $1.4 Trillion India Total exports and imports - $69 Billion and $89 Billion More relevant the trade balance between India and US Exports - Imports= $12 Billion - $5.4 Billion is $6.6 Billion in India's favour 3. Interest rates: India's interest rates have climbed down by over 1000 points in 10 years (1995-2004)While I do not have the comparable rate for USA I am sure there is no comparison. It still remains between 3-4% over the USA, making it attractive to buy rupees. the fear of inflation is also down. 4.Foreign exchange reserves of the USA including gold (official) is $86 Billion India's is about $ 126 Billion If india sells dollars, ( of which it has no great need) rupee would have to appreciate 5. External debt as a percentage of GDP (PPP) for USA - is 12% for India - is less than 4% at some time or other soon the USA has a debt trap to worry about. India doesn't note: 1.FDI flow in India is negligible ( $5 Billion)and has only decorative effect on indices 2. Gold , while nominally a dead investment is actually a strong and vibrant financial instrument ( ask pawn brokers) India's undeclared assets in gold should be of the order of $2.5 - 5.0 Trillion while this merits a more rigorous analysis, basic takeaway should be that the unofficial pegging of the rupee to the dollar ( done by indian government)is wrong. the moment it is removed, there is no doubt that the rupee should appreciate. JAI HIND!! :-) i had been going through this recently during some research ( http://www.cia.gov/cia/publications/factbook/geos/in.html and also http://www.cia.gov/cia/publications/factbook/geos/us.html )and i think this holds the key to a fresh look at your question. To look at some of the factors that normally impact exchange rates:

1. The current account deficit of the US is $ 680 Billion . India’s is a + balance of $4.87 Billion

2. Trade
US Total exports and imports - $650 Billion and $1.4 Trillion
India Total exports and imports - $69 Billion and $89 Billion

More relevant the trade balance between India and US
Exports - Imports= $12 Billion - $5.4 Billion is $6.6 Billion in India’s favour

3. Interest rates: India’s interest rates have climbed down by over 1000 points in 10 years (1995-2004)While I do not have the comparable rate for USA I am sure there is no comparison. It still remains between 3-4% over the USA, making it attractive to buy rupees. the fear of inflation is also down.

4.Foreign exchange reserves of the USA including gold (official) is $86 Billion
India’s is about $ 126 Billion
If india sells dollars, ( of which it has no great need) rupee would have to appreciate

5. External debt as a percentage of GDP (PPP)
for USA - is 12%
for India - is less than 4%
at some time or other soon the USA has a debt trap to worry about. India doesn’t

note:
1.FDI flow in India is negligible ( $5 Billion)and has only decorative effect on indices

2. Gold , while nominally a dead investment is actually a strong and vibrant financial instrument ( ask pawn brokers) India’s undeclared assets in gold should be of the order of $2.5 - 5.0 Trillion

while this merits a more rigorous analysis, basic takeaway should be that the unofficial pegging of the rupee to the dollar ( done by indian government)is wrong. the moment it is removed, there is no doubt that the rupee should appreciate.

JAI HIND!! :-)

]]> By: Deep http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-445 Deep Fri, 14 Oct 2005 09:05:26 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-445 Price Actually, interest rate differentials will not be very helpful, since capital controls introduce a wedge in the interest parity condition, and this wedge depends on the RBI's reaction function. Rather (and contra to the last sentence in my earlier comment), productivity differentials between India and her prominent trading partners will be more informative about where the rupee is headed in the long run. Countries with higher productivity typically have more appreciated exchange rates. Deep Price
Actually, interest rate differentials will not be very helpful, since capital controls introduce a wedge in the interest parity condition, and this wedge depends on the RBI’s reaction function. Rather (and contra to the last sentence in my earlier comment), productivity differentials between India and her prominent trading partners will be more informative about where the rupee is headed in the long run. Countries with higher productivity typically have more appreciated exchange rates.
Deep

]]> By: Prince http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-444 Prince Fri, 14 Oct 2005 06:35:26 +0000 http://indianeconomy.org/2005/10/13/is-the-indian-rupee-overvalued/#comment-444 Hi, Two more factors to be kept in mind is the interest rate differential as well as growth in export (besides the exporters lobby for weaker rupee). Rupee has already touched the 10 1/2 month low and if the FII money keeps pouring into the stock market as it has in last 9 months of 2005, then we might see some stability. RBI may not be keen to intervene as the interest rates as well the inflation are under control, hence their policy would be restricted to reducing the volatility of the Rupee. Besides with the introduction of Rupee options, the depth in the Rupee market has increased manifold. signing off... Hi,

Two more factors to be kept in mind is the interest rate differential as well as growth in export (besides the exporters lobby for weaker rupee).

Rupee has already touched the 10 1/2 month low and if the FII money keeps pouring into the stock market as it has in last 9 months of 2005, then we might see some stability.

RBI may not be keen to intervene as the interest rates as well the inflation are under control, hence their policy would be restricted to reducing the volatility of the Rupee. Besides with the introduction of Rupee options, the depth in the Rupee market has increased manifold.

signing off…

]]>