IIF, 21st September 2007: Strengthening of Indian Rupee against dollar is in the best interest of the exporters and the nation, says Dr. J.D. Agarwal, Professor of Finance at Delhi based Indian Institute of Finance. Professor Agarwal welcomed the strengthening of Indian Rupee against U.S. dollar, According to him it will help India greatly. Prof. Agarwal feels strengthening of Indian Rupee against dollar, when the value of dollar is falling in the international market due to expectation of recession in United States, will help India manage its economy well, contain inflation at an acceptable level, and reduce trade deficit in India, as India’s imports are higher than exports. It would also help offset the effect of unprecedented rise in price of crude oil.

According to Prof. Agarwal even exporters are likely to stand gained due to rise in the value of Rupee as against the general perception. When the value of Rupee is low, exporters are required to supply larger quantity of goods and services to earn the same amount of dollars; and pay higher freight & insurance charges, higher custom duty and incur higher cost of travelling in Rupee terms and incur other costs. The raw material cost of imported goods also would be cheaper to them in Indian rupees because they would enjoy the benefit of lower cost of raw material and lower customs duty. Strong value of Rupee will give the exporters cost advantage and increase their competitiveness.

According to Prof. Agarwal, the strengthening of the Indian rupee will discourage people to keep money in dollars whether in India or abroad. The wealth of those who have kept their ill gotten or rightly earned money abroad in dollars erodes when Rupee gains strength. The studies in the past published in Finance India indicated that there has been a capital flight to the tune of about U.S, $ 5 billion as far back as 1995 due to over invoicing and under invoicing i.e. abnormal trade pricing. Research studies have also indicated that some of the Politicians, Bureaucrats, Industrialists and a few others from developing countries keep their money abroad in dollar terms. That money belongs to those developing countries and if it gets back to these countries it would greatly help those countries to finance their development projects. Accordingly, Prof. Agarwal feels that India will be greatly benefited if the Rupee gains strength to get back at least a part of the money which some of our people have kept abroad.

According to Prof. Agarwal, strengthening of Indian Rupee also help a developing country to have competitive edge of the nation, enhancing its prestige Internationally and higher value of GDP, the wealth of nation and per capita income in dollar terms.

RBI has always tried to keep the value of Rupee low through excessive intervention for reasons best known to RBI, under the pretence that exports and exporters would suffer which is not correct.

However, Agarwal feels that strengthening of Indian Rupee has revenue implications for the government as the tax collections on customs duty and excise would be lower proportionately.