Macroeconomic Factors affecting

USDINR

Concepts-FactsAnalysis

• These developments threaten other Euro zone economies and even the future of the Euro • Additionally political crisis in Middle East inflating the crude prices. Ireland. . these euro zone economies have witnessed a downgrade of the rating of their sovereign debt. Portugal.Introduction • Rupee started depreciating after the perception of Greek Default • Starting from Greece. fears of default and a dramatic rise in borrowing costs. Spain and more recently Italy.

Demand for $ increases.Demand – Supply Concept SNo CAUSE EFFECT 1 2 3 4 5 6 FII pull out money so they sell Re Supply for Re Rises Global sentiments & EURO crisis leads overseas Supply for Re Rises investors to sell in India and buy $ as safe haven.8% Growth Imports = US $ 350.4% Growth TradeDeficit = US$ 133. During Fy11-12 (april-dec) Exports = US $ 217. RBI Selling$ from its forex reserves to stabilize rupee.5% Rise Investments inflow decreases. No significant effect but decrease in forex reserves. Current a/c deficit makes us Net debtor to rest of Supply for Re Rises the world. Political Instability hits foreign investor’s sentiments negatively. High inflation decreases purchasing power against other currency Demand for Rupee decreases. 7 8 Rise in Fiscal deficit results in to more external aids and borrowings. Demand for $ increases.3Bn V/s 96.2Bn= 38. .9Bn = 30.7Bn= 25.

GDP GrowthForeign capital flow Inflation & Interest rate in the economy. 4. 2.Fiscal deficit & Its Causes Performance of the stock market . Economic performance of the economy. Balance of payment position of the economy.Factors Affecting USD/INR 1. 7. 6. 3.Equity markets and FII flows Efforts of the central bank in managing the exchange rates Political stability Global Currency Trend Correlation to movements in EUR and broad USD Index Broad movement of peer currencies Oil Prices . 9. 8.Current Account deficit-FDI Inflows Fiscal position of the economy . 5.

nic.nic.in/data/datatable/0904/tab_2.in .pdf planningcommission. Source .Due to Lower Agriculture & Industrial Growth the overall GDP is affected.http://planningcommission.

5.. 2006-07 . 2.9 Manufacturing.1 levels of 9. 2008-2008-09 . 15.6 Quarrying.3 11 11 .rbi.6 2. 15. 2. 10 General.0 Mining & Quarrying Manufacturing INDUSTRIAL PRODUCTION Electricity General GROWTH RATES www. 5..5 • This is a vicious cycle. 6. 10.6 March 2012. Quarrying.07 Quarrying. 5.3 General. Mining Mining & . 7. 5. 12. 8.5 2008-09 . Government of India. 2007-Mining & Manufacturing. General.Electricity.org Central Statistics Office (CSO). 08 .8 . 09 2. 2. Manufacturing.0 General. 2008General. 2009Electricity. 4. 2009.2 07 Manufacturing.(IIP Chart) • Rising global commodities prices of food.9 . -2. 200506 .0 Mining & 2006. 2005.Fall in agriculture output • Manufacturing slowdown. 2007-08 2006-07 . 8. 12 .5 2.3 Mining & 10 . 9. 8. 4. Industrial material are transmitted to domestic prices in Cost-Push manner. 2010Electricity. 5. last reported in Manufacturing.2 General.7 2011-12 .2.2 . is close to the double-digit Electricity. 200608 . . General.5 06 .2 . 201112 . 2007-08 . 3 Factors behind High Inflation: • High food price inflation as demand outpaced supply. 6. 2011-12 Electricity.Electricity.Economic performance of the economy • GDP Inflation Repo GDP is showing a slowdown QoQ & IIP Data following similar trend in the industrial production YoY. 2009-10 Manufacturing.8 Mining & Quarrying. 20112010-11 Quarrying. .3 09 . 7.3 2009-10 Quarrying.4 borrowing abounds.9 .2 Electricity. Results • High interest rates and increase cost of Manufacturing.& 20072010-11 .5 per cent. Mining & • The rate of inflation. 2010Quarrying. 18.. 2005-06 2005-06 .

Foreign Capital flow Net FII Inflow 01-Jan-11 • Fall in Net FII Investments & FDI Investments. Manufacture FDI Break up FY 2010-11 Construction Financial Services Real Estate Activities Electricity and other Energy Generation. Distribution & Transmission Communication Services Business Services Foreign Investment Inflow Direct investment Portfolio investment Total (A+B) Miscellaneous Services Manufaturing Construction Financial Servies www.rbi.org Source.SEBI .

Current account III. Capital account = Foreign Invst + Comm Borrowings + Re Debt Ser + NRI Dep Overall balance (II+III) Net CA = Trade bal + Invisibles .2% hike in petrol bill & 44.4% in gold imports  Petroleum products are 69% of total import bill KEY COMPONENTS OF INDIA'S BALANCE OF PAYMENTS . Crude and Products Gold and Silver Total Imports /All Commodities US $ mn  There is 46.US $ Net Current Account (In USD $Mn) I. Trade balance II.Balance of Payment position of the economy Trade Bal= Merchandise (Exports-Imports) Oil Non-Oil Total Fig indicated are -ve Petroleum.

?  REASONS :- 71000cr of revenue loss in petroleum sector = .1% of GDP o Short term debt to total debt on residual Maturity basis Drop in growth rate resulted into net tax revenue = 22800cr =. revenue inflows not in pace with its expenditure outflow Gross fiscal deficit (Rs in Cr) After targeting a fiscal deficit 4.6 per cent of (GDP) for this fiscal year it is at 5. Net Aid (US $Mn) 2004-05 Short-term Debt* to Total Debt Short-term Debt* to Foreign Currency Assets Concessional Debt to Total Debt Total External Debt to GDP Source : Ministry of Finance & Reserve Bank of India .  Fertilizer subsidy increase by 17200cr to boost agri output due to lower output in previous yr.7% of GDP.9 per cent.Fiscal position of the Economy : Govt. Total slippage in revenue – 149356 Cr = 1.  Provision for food subsidy increased by 12250cr Total of 3 subsidy = 100451 Cr = 1.8% of GDP..3% of GDP o Due to volatile capital market Govt had to recalibrate its disinvestment program and accordingly 13895cr has been estimated against 40000cr.

Repo Rate cut to 50bps & Reverse Repo rate cut to 50bps.Efforts of the central bank in managing the exchange rates FII flows in Indian markets Forex Reserve SDR (USD Million) GOLD (USD Million) Forex (USD Million) Reserve Tranche Position (USD Million) Total (USD Million) RBI intervention in Forex markets  RBI conducted USD selling interventions in the spot during Nov Feb for USD 20. Source –www.org .5 bn  CRR reduced to 75bps.rbi.

Global Currency Trend INR moving in line with other EM currencies. • Currencies in BRIC nations also depreciating and maximum effect is seen in South Africa but reverse effect in China. Source : Bloomberg .

Interest Canada. France. UK. 3 Inflation. USA. Brazil. India. GDP %. France. China. Russia. UK. 0 • • • • The US. 11.8Germany. Austraila.5 Inflation. 3. 1. %.7 1. USA. Austraila. GDP %. 6. 8.rate.Economic conditions in Global Scenario Current A /c to GDP(%) in Major Countries & BRIC Nations Debt to GDP In Major Countries & BRIC Nations Germany • GDP % Interest rate Inflation GDP-Int rate & Inflation in Major Countries & BRIC Nations Interest rate.8 1 GDP Interest 1 France. %. Brazil. Russia. Austraila.5 Japan.99 4.com .6 Canada. GDP %.3 GDP %. Any global crisis means the availability of credit will become tight leading to a squeeze in investments and less borrowing to fund any projects for both government and private sector Source-tradingeconomics. 4.6 GDP 3. 2. Japan. China. rate. rate.rate. 8.25 0. Inflation. rate.5 GDP %.33 0.31 Inflation. 0. Inflation. Inflation.3 Interest Inflation.rate. China is dealing with wage increases.2 Germany. 4. Interest Interest %.9 Inflation. GDP %. pressure to allow its currency appreciate and issues with overcapacity.Inflation. 2 Inflation. UK has announced a double-dip recession and the end of the Euro zone crisis is nowhere in sight.9 Interest2 Germany. GDP %. Canada.55 Interest rate. Sanctions on Iran will also mean that oil prices may spike leading to further economic pressures. China.7 Inflation. 0.1India. 0. 5. 0 Japan. the world’s largest economy is struggling. 1. 1. GDP %. Interest Interest Brazil. GDP rate. rate. Interest rate. 8Russia.7 1. 8 7.8 2. India. UK.4USA.

have all been put on hold. aviation and other sectors in the parliament has stalled because the ruling UPA is unable to make any decisions with its back against the wall and facing the prospect of an early election of it refuses to toe the populist line.  The much-awaited goods and service tax (GST).Political Stability  The verdict in the state elections and increasing pressure from its coalition allies means that the government cannot go ahead with much needed reforms. decontrolling of diesel prices.  Not wanting to antagonize the electorate or its coalition allies.  FDI in retail. expect the UPA to trudge along without making any policy changes that can propel the economy forward .

Increases Interest rates leading to high cost of borrowing (Encouraging ECB) and decreases output = Lack of growth Opportunities. Global crisis 0r Lack of growth opportunities leading to negative foreign inflow Wait until Euro debt issue is resolved as investments across the world are interlinked & investors are now buying $ as save haven instead of Gold Increases the CAD as outflow exceeds inflow = Demand for $ leading to depreciating Re. Once Re appreciates the oil import bill will reduce resulting in to lower cost of input & output prices = more savings leads to increase in money supply Cost of Input goods goes up leading to increase in prices of output products = More spending & less savings that disturbs liquidity system in economy. Increases Inflation. Oil Imports remaining high leading to huge payments due to depreciating Re Policy measures to be taken on political front leading to growth opportunities to attract foreign investments = Raises demand for Re . so cost of borrowing reduces = growth of industries = rise in GDP = Investment Opportunities Affects GDP.Appreciating Depreciating Rupee Rupee Cause-Effect-Solutions Money supply increases.

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. Ahmedabad.Thank You Tamanna Edmund Keen Economist – Planner-CFA-CWA(Final) School Of Planning. CEPT University.

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