We are all aware by now that an open economy's currency appreciation has negative effects on its Net Exports (NX). And the current appreciation of the Indian currency, Rupee, is a perfect real life example for this phenomenon. The Indian currency rose up by 9 % against the dollar in the last few months, while its Exports fell by 6.4% .
This is not a new scenario in the global market, but what is to be noticed is that unlike some other economies who are trying hard to fight currency appreciation, India is willing to let its currency appreciate. Reasons, India is trying to absorb as much influx of money as possible from foreign investors to help support its modern consumer economy approach. This has not only led a surge in foreign investors investing in India, but has helped the Indian economy grow of which 9% comes from capital inflows.
If India, as one of the Emerging Markets, is boosting its consumer economy through currency appreciation, do you think other Emerging Market Economy such as China should be doing the same?
This is so different that India uses capital inflows to increase economic growth, while developed countries uses capital outflows to increase economic growth. I think this happens because of the low purchase power. India has to increase the purchase power first. After people have enough money to purchase, they will make extra goods for export.
ReplyDelete