Indian economic condition : decoded

Rupee - It's is the medium of exchange ,  Exchange rate of INR to that of other currencies is managed by floating system where market mechanisms of demand and supply determine rate of INR in relation to other currencies   .

In short the value of Rupee against dollar represent the economic situation of India.

Why Rupee Is falling ? - Here is analysis that is simply understandable to all.

1. ) CAD :-

 ►High Current Account Deficit (CAD) is the main reason that has continuously impeded all efforts of government in arrest the fall of rupee

►India posted a record current account deficit of 4.8 percent of gross domestic product (GDP) in the year ending March

  * How can we decrease CAD ?
         -  simply by exporting  materials / products / services .

  *Why can’t we increase exports ?
        - Cause due to high inflation , our products become less competitive in global market

        - Indian products/Services became less competitive in global market

         - And biggest reason is Recession in Europium unions which is second largest market for  India , EU purchasing less so,directly Indian exports decrease.
                       
 
  *Ways should try to increase exports :-
          - Due to ban on ore mining in many state (supreme court due to scams ) , out steel producers import ore from other   countries  , though india sit on the huge iron ore reserve.

       - Same in case of Coal , India have huge amount of coal reserve though  due to bad policies and scams out power producers import coal from out side.

      - Actually We are exporters of ore and coal but due to scams we are importing the same due to bad Policies and scams

(Before the ban, India was exporting iron ore worth over $ 7 billion, making it the third-largest exporter in the world.)

( Karnataka’s and goa’s iron ore used in china’s last Olympic)
                  
 
 ► Relation of Rupee-CAD is   important , when CAD increase , it’s reason for fall in rupee,  A depreciation of the rupee increases the price of the country’s imports, and also makes its exports cheaper for foreigners , these lead high CAD and again this lead in the fall of rupee .


2.) Insufficient FDI inflows :-

►Despite all the decisions to allow major reforms in India, the government has failed to tap major FDI inflow in the country. Instead, India has witnessed withdrawal of major projects by global giants like ArcelorMittal and Posco.

►Overseas investors have pulled out nearly Rs 18,500 crore (about USD 3 billion) from the Indian capital markets in July.

  FDI – Foreign direct investment , Recently government showed green flag to high FDI inflows in telecom , defence , retails etc but no one ready to invest in India.

Two matters that affect FDI for any nation :-

    (a) Political environment – Currently we have collimation Government , which work     under the pressure of many parties, so unable to take decision due to pressure from regional party to seat on the chair of power . It worsening out economic situation.

    (b) Country’s Economic condition – It’s also poor in case of rupee due to high CAD and Fall in rupee
         

3.) Rising Import bill ( Gold)

►Rising import bill (arising out of gold) is also a major factor that has curtailed government’s effort to tackle the fall of rupee. Gold contributes to over 10 percent of the total import bill

- Oil share nearly 35-40% and Jewelery share 18-20% in Indian import bill mean these two product alone share nearly 60% in Indian import.

- Oil products is necessary but Gold is unnecessary .

* Why  People buy gold ?

- Government  try to curb Gold import many ways , Finance minister appeal people not to buy gold, alpply 10% duty on gold import etc

- There are two reason behind this :-

(a) Traditional thinking :-

- Gold is ancient currency , which is now replace by paper money in Morden life

- Most of Indian are not aware about the modern finance system , they less know about mutual funds, share markets , bonds and simply invest in gold .

 ( You can buy gold of Rs.50000 in 1 minute in any part of india , where you have to spend many hours  to spent same amount in other investments as mutual funds etc )

(b) Economic reasons :-

- Love triangle : - Gold , oil and Sensax . when Gold and oil are the two lovers of Sensax , when price hike in oil and gold , sensax have to pay the price for it .

In simple , Gold and Share market are the top 2 destination of investment , but when share market don’t give good return people automatically turns to gold investment for security .

And when oil price increase , it’s lead crash in sensex and this lead people to more invest in gold .

Example :- In January and July 2008, steadily climbing oil prices propelled gold higher. If a barrel of crude oil rose from $94 to a record $148 a barrel by July, gold too hit a new record.
One explanation for they move in tandem during this period could be that price rises were fuelled by the same speculative forces. On March 17, 2008 when the Sensex fell by 6 per cent after shedding close to 950 points, gold touched its all-time high price of $1,024 an ounce, gaining close to 3 per cent.

4.)  Overall economic contraction :-

Poor economic growth in the manufacturing, agricultural and mining sector has dented investor sentiment and they have become wary of investing in India.

It's doesn't mean that only these affect economy , I miss 2-3 important point like inflation , unemployment , interest rate in this analysis .

But try maximum to make things simpler.