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Whither The Rupee?

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[FLATTENED: According to some forecasts, the rupee will touch Rs 56 in three months (Pic by Tribhuwan Sharma) Everything is plummeting: exports, imports, economic output and the currency. The rupee went below Rs 52 to the dollar on 3 March, and further declines in its value are imminent. Barclays Capital, a British investment bank, recently said the rupee could touch Rs 56, and Goldman Sachs, a US bank, said it could depreciate by 10 per cent in the next 12 months. A number of proximate causes have been advanced: worsening economic conditions, horrible government finances, and the global recession. India Inc. is worried: companies’ foreign liabilities now mean higher debt servicing costs and lower profits; for several with positions in currency derivatives that have not yet unwound, the income statement for this financial year will have big holes. Both importers and exporters have made assumptions about the sustainability of exports, and hedged at Rs 42-45 levels; at Rs 52 and over, that hurts. The Reserve Bank of India (RBI) has tried to stem the rupee’s value decline, but its capabilities — and its resources as measured by the size of its foreign exchange reserves — are limited in a world where almost every currency is weak relative to the dollar. The decline of the rupee poses several risks. A declining currency is unlikely to attract fresh foreign capital, something India sorely needs. If anything, there has been capital flight through portfolio outflows, and there could be more. All forms of supplier credit are drying up, and dollar demand is rising from both importers and exporters, adding further pressure. The proposed new symbol for the rupee is unlikely to be a symbol of strength. COMMODITIES Tug Of War Who has the right to fix transaction charges: the exchange or the regulator? COLD WAR: FMC has cancelled NCDEX’s proposal to change transaction charges (Pic by Satheesh Nair) The tussle between the Forward Markets Commission (FMC, the commodities market regulator) and the National Commodity and Derivatives Exchange (NCDEX) has taken a new turn; the FMC put its order dated 19 February that set aside an NCDEX’s circular dated 28 January on its website www.fmc.gov.in. In the circular, NCDEX had reduced transaction charges for trades after 5 pm. On 29 January, FMC passed an interim order prohibiting NCDEX from implementing the exchange’s circular. NCDEX filed a petition in the Bombay High Court but the court said it is FMC’s call and FMC concluded it was right in its earlier action. The FMC says it is intervening to “discourage unhealthy and irresponsible competition” but commodity market producers, investors and brokers might well be arguing it is their choice — and not the regulator’s — to determine what constitutes unhealthy practice. “At present, smaller traders are at a disadvantage on account of higher transaction charges and our objective was to provide a level-playing field,” says R. Ramaseshan, managing director of NCDEX. As long as there are multiple exchanges, the freedom to fix transaction charges should remain with the exchange and not the regulator. Rajesh Gajra GLOBAL NEWS The army of Guinea-Bissau shot dead the country’s president João Bernardo Vieira on 2 March. This happened within hours of the army chief, General Tagme Na Waie, who was critical of the president, being killed in a bomb blast. Vieira ruled the tiny African country for 22 years.   Click here to view 'GM Leads Plunge In Sales' BROADCASTING Shifting Revenue Base Viacom18’s entertainment channel, Colors, and the Sony-led distribution network OneAlliance have signed a deal that will give Colors a minimum guaranteed return of Rs 270 crore over three years. Colors, which has been distributed free so far, will charge Rs 21 per subscriber per month. According to Colors CEO Rajesh Kamat, Colors will serve as a driver channel for the OneAlliance bouquet, whereas competing distribution networks such as Star-DEN are too “crowded”. The Sony-Colors deal, inked by former Sony CEO Kunal Dasgupta, highlights the importance of subscription revenue at a time when companies have been cutting down on advertising. Revenue for broadcasters is skewed heavily in favour of advertising in a 70:30 ratio, and channels are trying to ensure that the dependence on ad revenue is progressively reduced. “Advertising is down, but subscription continues to show robust growth,” says Rajesh Jain, head of entertainment practice at KPMG. Gurbir Singh (Businessworld Issue Dated 10-16 March 2009)