The rising Rupee signifies the increasing strength of the Indian economy. Liquidity inflows in our economy have increased significantly over years.
Rising Rupee has hurt exporters and this has led to a debate whether the strengthening of Indian Rupee is favourable for our economy and for various industrial sectors, which are export oriented such as information technology.
The fact of the matter is that the Rupee will continue to strengthen and interventions from the Reserve Bank of India may not work as the rise in Rupee is due to strong economic performance.
Firms whose imports are in dollar denominated currencies are the major beneficiaries. Companies, which are being hurt the most with the rising rupee, are those whose revenues are generated in dollars and whose costs are denominated in rupees. A million rupee question (rather than a million dollar) is what strategies the Indian firms should adopt to make their business sustainable.
Indian companies should start thinking global and act as global companies of Indian origin. One of the ways of countering the rising Rupee is to move out processes and production facilities to countries that have been their key export destinations or to countries that are the potential markets.
This strategy will be beneficial in many ways like:
Jay Prakash Gupta is Head, Commodities, MK Commodity Brokers Ltd