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Siegel on the Indian Rupee

Here is part of a Q&A with Wharton finance professor Jeremy Siegel. Interesting discussion on the trends in the Emerging markets, the US economy and else.

Here Siegel argues that appreciation of the Indian Rupee is bad for the Indian Exporter, while good for the consumer.

But the largest plank of growth in the Indian Economy is related to exports of technology and services, and even a bit of manufacturing. If the exporters are hit, then the consumer has less money to spend.

Siegel is talking from the US perspective. A stronger rupee makes a weaker case for outsourcing, retaining jobs and services in the US. And he implies correctly, that the Indian middle class consumer who is spending the stronger rupee is going to be buying US (and Western) derived goods and services. These again help the US economy.

Knowledge@Wharton: There was a time when the India rupee was about 47 or 48 to the dollar. In recent weeks the Indian rupee has appreciated to 40 rupees to the dollar. What do you think are the implications for the global competitiveness of Indian firms?

Siegel: This is painful. It's been the strongest appreciation of the rupee in over 30 years as I look back as some of the data. Basically, they have a big cost advantage. It's just gotten a little smaller, which is good; it means that they're going to have to continue to watch costs on exports. I think that they should use this appreciation of the rupee to lower prices to consumers and to encourage the middle class.

This is because everything that they import is 10% to 15% cheaper than it was before. I think even oil has even gone down, perhaps in rupees, over the last 6 months. So, there are good things that come of it for the consumer. My feeling is that India should not move against this. The exporters have had it really good. Let's give the Indian consumer a break and continue to make sure that the exporters are going to have to stay on their toes as far as competitiveness is concerned.

See rest of the article, here.

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