India Knowledge: Two sides of a rising rupee

India’s rupee, which once traded for 47 or 48 to the US dollar, has been rising rapidly. It now stands at 40 to the US dollar. As a result, the revenues of India’s exporters—which include IT firms such as Infosys, Wipro and TCS—have been affected and earnings have been squeezed. At the same time, though, consumers are benefiting from cheaper imports. How should India manage this trade-off?
According to Wharton finance professor Jeremy Siegel, although Indian firms will need to watch their export costs more carefully, the 10% to 15% savings on imports should be passed along to consumers. “My feeling is that India should not move against this,” Siegel said in a recent interview. “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.”
Despite the pain to exporters, currency appreciation can curb foreign capital inflows which can have a crippling effect on markets in the long term. “By letting (the currency) appreciate, people are a little bit more cautious,” Siegel said, citing the era of fixed exchange rates in Thailand, Taiwan, Indonesia and the Philippines that precipitated a crisis in 1997. “All of the capital that came in—they couldn’t deploy it favourably, and the result was over-consumption, deficits and then finally devaluation.”
According to Siegel, balanced economic growth “requires not just pushing exports, but also developing your middle class. And you develop your middle class by passing on some of those price gains that you get through strong currency, to lower their cost of living.”
Pre-announcing vs a surprise unveiling
When it comes to rolling out new goods and services, companies tend to choose one of two strategies as a way of generating interest in their products, whether it’s Apple’s iPhone or Microsoft’s latest operating system. One is pre-announcing the product to give customers, partners and even competitors advance notice of what’s to come. The second approach is the surprise unveiling, where a company hopes to make a big splash by giving few hints about an upcoming release. Which approach is better?
“It’s not a clear-cut situation,” says Wharton marketing professor Jehoshua Eliashberg. “What matters more is a company’s position in an industry. If a company is a dominant monopolist, it has reason to pre-announce because it doesn’t fear a competitive reaction. If the company is smaller, the negatives of announcing a product early outnumber the positives.”