The Rupee-Dollar parity will continue to be adverse to the rupee. The rupee may further depreciate, or it will fluctuate around Rs.80 to 84/-. It looks like the exporters will gain from it, but the reality is not that simple. The USA and other western countries are struggling, and the pain is yet to transcend completely. Consumers may downsize their spending on discretionary items, which may in turn affect the entire supply chain from retail to manufacturing. Production cuts, downsizing, and a freeze in fresh hiring are on the rise. The corresponding increase in unemployment creates a vicious cycle and further lowers spending.
How will this affect India?
Exports to western countries may take a hit. India is a net importer in Balance of payment, so there will be more pain points for us in the goods and services we import. Dollar parity could make our imports bill dearer and push inflation higher.
Once persistently high inflation hits us, our economy will start to struggle like the USA and Western Countries, but we can ensure that impact is lower and limit the damage.
Our economy will be resilient in this decade till the next decade. We have several favourable things going for us – better GDP Growth, Demographic Dividend, larger population, infrastructure opportunities, and many more. We need to make the world investors turn their eyes to India in both FDI and FII Route. They have expectations that need to be met and like consistency in policymaking. They need visibility of growth over a more extended period. Fortunately, India has been on their radar for the last two decades and will continue to be for the next 2 to 3 decades.
India has to continue to complete reforms and other economic actions that will aid in building more confidence. We have enough talent capital, vast land banks for industry, Hectares of Cultivation lands, Forests etc. to support.
Many overseas Government funds are interested in the India growth story. They are in various stages of development. To quote a few, the Saudi deal with Reliance, the Dubai Government with Tata, and Qatar deal with Adani. Since Indian Independence, this is the very first time that several wealthy countries have shown interest in Indian private companies. This signals that India will provide enviable growth opportunities in the coming years.
What should we do?
We must make our rupee exchange a lot more stable, and for that, we have to reduce our dependence on imports and work to get more export opportunities. We have to invest more in renewable Energy to make it competitive against coal as this will reduce our import bill.
We have to make our tax system clear and precise, at par with Global Standards (This year government suddenly announced a Windfall tax on oil and an export tax on Steel). Investors won’t like mixed signals or reforms. Dependence on oil imports should be reduced by allowing the existing players to find more oil fields ( Can give subsidy or tax exemption for finding more resources). The reforms should also focus on the rural economy. The rural economy has been lagging behind its urban counterparts and reducing the gap in the coming decade will distribute wealth more evenly.