Exchange rate not just the RBI’s baby

Exchange rate not just the RBI’s baby

India’s exchange rate is a stumbling(लड़खड़ाना/चूक जाना) block in rapid(तीव्र/शीघ्र) export growth and the country will miss out on the opportunity(अवसर/सुविधा) to cash in on the high world growth visible now, unless corrective action is taken. Delivering a lecture last week in memory of former Planning Commission member and ET columnist(समीक्षक) Saumitra Chaudhuri, C Rangarajan weighedin against any aggressive policy of undervaluation(कम मूल्यांकन) but strongly recommended adjusting the nominal exchange rate to keep the real exchange rate steady, while working towards price stability and productivity(उत्पादकता) growth, particularly in the traded sectors.

The two factors driving export growth, by any estimate, are world growth and the real effective exchange rate (REER). The higher world growth, the higher export growth. The higher India’s REER, the lower India’s export growth. REER, with 2004-05 as 100, has been climbing(चढ़ाई): 122.71 for 2015-16, 125.17 for 2016-17 and 126.77 last month. The good news is that the February figure is lower than that for January. If the US Fed does go ahead and raise rates as it has announced it would, an outflow of dollars from the capital markets is likely to lower both the nominal and real exchange rates. The reality is that capital flows, both direct and portfolio(निवेश सूची/राज्य के मंत्री का पद), have a greater role in determining(निर्धारित करने) the exchange rate than current account transactions. Thanks to India being the world’s largest recipient of remittances(प्रेषण/भेजा हुआ धन) and being a robust exporter of services, a large surplus(अतिरिक्त/बचत) in non-merchandise(व्यापार/वाणिज्य वस्तु) flows allows India to run up a huge deficit(घाटा/अभाव) in trade in goods: 5% of GDP in 2016-17, when the current account deficit (CAD) was just 0.7% of GDP. CAD this year is expected to be 2% of GDP, still within prudent limits. India has over $420 billion of forex reserves(विदेशी मुद्रा भंडार,), but these are derived from unabsorbed(अनवशोषित) capital inflows and not current account surpluses, making it imperative that India maintain external confidence, for which a low current account deficit is essential.Lower interest rates would stem hot money inflows, but that calls for a grip on inflation(मुद्रा-विस्तार), in turn, calling for fiscal(राजकोषीय/वित्तीय) restraint(संयम/अंकुश) and good supply-side management.


Important Vocabulary

1.Stumbling(लड़खड़ाना/चूक जाना)
Synonyms: bumble, careen, fall, fall down, falter
Antonyms: continue, correct, fix, straighten, lose

Synonyms: correspondent, reporter, writer

3.Determining(निर्धारित करने)
Synonyms: certain, conclusive, decisive, definitive

4.Remittances(प्रेषण/भेजा हुआ धन)
Synonyms: keep, livelihood, living, maintenance, provision
Antonyms: entertainment, fun, neglect

Synonyms: caution, constraint, control, moderation, restriction
Antonyms: aid, assistance, freedom, help, indulgence



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