THE HINDU Editorial Vocabulary-August 8, 2017- Topic 2

Raging rupee: resisting arguments for making the rupee cheaper

The Indian rupee has turned out to be one of the best-performing currencies in the world with a gain of well over 6% against the U.S. dollar this year to date. In fact, the currency hit a two-year high of 63.60 last Wednesday, supported by strong inflows of foreign capital. Around the beginning of 2017, analysts were bearish on the rupee, predicting that it would breach the 70-mark by the end of the year. But strong capital inflow has managed to turn the tide. According to the Reserve Bank of India, foreign portfolio investors invested $15.2 billion in India’s equity and debt markets this year until the end of July. 

In addition, foreign direct investment in April-May doubled compared to last year. Such generous inflow of capital, of course, is in sharp contrast to 2013 when the tightening of policy by the U.S. Federal Reserve had rattled the rupee. This time around, emerging markets have escaped any such taper tantrum as the Fed’s approach towards tightening has been measured. Another major contributor to the rupee’s strength is the RBI’s hawkish stance, which has pushed down domestic retail inflation to a record low of just around 2%. This has spilled over to influence the external value of the rupee as well. Oil prices remaining stable at around the $50 mark too has helped as Indians have had to shell out fewer rupees on oil imports. This is reflected in the improved current account deficit, which stood at 0.7% of GDP in 2016-17 compared to almost 4.8% in 2012-13.

Notably, worries about the impact of a strong rupee on exports have risen in tandem — particularly in sectors such as pharma and information technology. There is little doubt that an appreciating rupee will affect the competitiveness of Indian exporters. In fact, it is estimated by UBS that each 1% appreciation in the external value of the rupee causes earnings of Nifty companies to drop by 0.6%. The question, however, is whether it is sufficient reason to tinker with the value of the currency in a way that makes it expensive for Indians to import goods. After all, any protectionist action, particularly in today’s low-growth global environment where countries look to steal growth from each other, is likely to draw retaliatory action. This will not bode well for the growth prospects of India or any other country. Exporters should instead be pushed to adapt to the uncertainties of doing business across borders. And the rupee’s improving external value should be seen, at least in part, as a reflection of the improving quality of the currency. The central bank has thus clearly done well for now by not fiddling with the value of the rupee. At the same time, it would be foolhardy to take things for granted. Going forward, tighter monetary policy in the West will invariably exert more pressure on the rupee. The RBI would then have to muster greater will to let the rupee find its natural value.

Vocabulary

Breach: an act of breaking or failing to observe a law, agreement, or code of conduct.

Example: A breach of confidence

Synonyms: contravention, violation, infringement, infraction

Generous: showing a readiness to give more of something, as money or time, than is strictly necessary or expected.

Example: She was generous with her money

Synonyms: liberal, lavish, magnanimous, munificent, giving, openhanded

Tantrum: an uncontrolled outburst of anger and frustration, typically in a young child.

Example: He has temper tantrums if he can't get his own way

Synonyms: fit of temper, fit of rage, fit, outburst, pet, paroxysm, frenzy

Taper: diminish or reduce or cause to diminish or reduce in thickness toward one end.

Example: The tail tapers to a rounded tip

Synonyms: narrow, thin (out), come to a point, attenuate

Spilled: cause or allow (liquid) to flow over the edge of its container, especially unintentionally.

Example: You'll spill that coffee if you're not careful

Synonyms: knock over, tip over, upset, overturn

Tandem: having two things arranged one in front of the other.

Example: A tandem trailer

Appreciating: recognize the full worth of.

Example: She feels that he does not appreciate her

Synonyms: value, treasure, admire, respect, hold in high regard

Protectionist: an advocate of the policy of shielding a country's domestic industries from foreign competition by taxing imports.

Example: Barriers erected by the agricultural protectionists

Retaliatory: characterized by a desire for revenge.

Example: Fears of a retaliatory attack by the victim's friends

Foolhardy: recklessly bold or rash.

Example: It would be foolhardy to go into the scheme without support

Synonyms: reckless, rash, irresponsible, impulsive, hotheaded, impetuous