The Indian government is weighing capital controls with the rupee on the rise amid fears of “hot money” flowing into the country as investors pile back into Indian assets.
Unlike fellow emerging market giant China, India allows its currency to float freely and the central bank has warned of the dangers of “sharp and volatile” exchange rate movements that could hurt India’s economy.
With the rupee riding at 18-month highs against the dollar, one idea Reserve Bank of India Governor Duvvuri Subbarao is airing to curb sudden big movements in the currency’s value is a tax on foreign exchange transactions, known as a Tobin tax, similar to one Brazil introduced last year.
“Depending on what flows come in, we would employ measures, including if necessary something like the Tobin tax,” Subbarao said last week, referring to a proposal first aired in the 1970s by Yale economics professor James Tobin.
“We prefer long-term flows to short-term flows,” he told a Washington audience on Monday in a speech posted on the bank’s Web site.
Tobin, a Nobel laureate for his work on financial markets, proposed a small levy on every sum changed from one currency into another to curb short-term speculation, stabilize currency markets and encourage long-term investment.
Portfolio flows into India from foreign countries between April and December last year nearly equaled the total from 2000 to 2005, driving up demand for the rupee and causing it to strengthen against other currencies.
A further surge in capital inflows “could force [Indian] policymakers to resort to more active means, a la Brazil,” economist Hemant Mishra of Standard Chartered Bank said in a recent commentary.
The currency has risen 5 percent against the dollar since the start of the year to trade at about 44.36 rupees per dollar on Friday, following a record low in October 2008.
The rise has been similar against the yen this year and more impressive against European currencies. The rupee is up close to 9 percent against the pound and 11 percent against the euro.
Analysts say the Indian currency could be trading below 44 rupees to the dollar by next month.
But India knows all too well what can happen when foreign investors’ ardor for its assets wanes.
As the credit crisis spread across the globe in 2008 and risk appetite evaporated, the rupee slid by 27 percent to breach the 50-rupee level to the dollar in the space of months as foreign investors stampeded for the exits.
India is in desperate need of investment to update its dilapidated roads, ports and other infrastructure, but speculative capital flows can be destabilizing, resulting in sharp movements in asset prices, economists say.
Along with strong economic growth — officially forecast to reach 8.75 percent this financial year — foreign investors have also been lured by interest rates that are on their way up as the Indian central bank seeks to clamp down on inflation.
Although the currency has yet to regain all its previous strength — it hit a 10-year peak of 39.4 rupees to the dollar in early 2008 — the Reserve Bank is under pressure from exporters to stem its appreciation.
The government must also weigh the fact that as a higher rupee hits exporters, it helps dampen inflation running at a 17-month peak of 9.9 percent by making imports cheaper, economists say.
Exports only account for around 15 percent of the GDP of India’s still inward-looking economy.
“Inflation concerns trump exporters’ complaints about competitiveness” with the central bank, Moody.com economist Nikhilesh Bhattacharyya said.
“Taking measures to depress the rupee at the current juncture would add to imported inflation pressures when consumer prices are rising at some of the fastest rates in a decade,” Bhattacharyya said.
Instead of trying to depress the rupee, the central bank “appears to favor actions to discourage short-term capital flows, which have fed into asset price inflation across Asia,” Bhattacharyya said.
BYPASSING CHINA TARIFFS: In the first five months of this year, Foxconn sent US$4.4bn of iPhones to the US from India, compared with US$3.7bn in the whole of last year Nearly all the iPhones exported by Foxconn Technology Group (富士康科技集團) from India went to the US between March and last month, customs data showed, far above last year’s average of 50 percent and a clear sign of Apple Inc’s efforts to bypass high US tariffs imposed on China. The numbers, being reported by Reuters for the first time, show that Apple has realigned its India exports to almost exclusively serve the US market, when previously the devices were more widely distributed to nations including the Netherlands and the Czech Republic. During March to last month, Foxconn, known as Hon Hai Precision Industry
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and the University of Tokyo (UTokyo) yesterday announced the launch of the TSMC-UTokyo Lab to promote advanced semiconductor research, education and talent development. The lab is TSMC’s first laboratory collaboration with a university outside Taiwan, the company said in a statement. The lab would leverage “the extensive knowledge, experience, and creativity” of both institutions, the company said. It is located in the Asano Section of UTokyo’s Hongo, Tokyo, campus and would be managed by UTokyo faculty, guided by directors from UTokyo and TSMC, the company said. TSMC began working with UTokyo in 2019, resulting in 21 research projects,
Ashton Hall’s morning routine involves dunking his head in iced Saratoga Spring Water. For the company that sells the bottled water — Hall’s brand of choice for drinking, brushing his teeth and submerging himself — that is fantastic news. “We’re so thankful to this incredible fitness influencer called Ashton Hall,” Saratoga owner Primo Brands Corp’s CEO Robbert Rietbroek said on an earnings call after Hall’s morning routine video went viral. “He really helped put our brand on the map.” Primo Brands, which was not affiliated with Hall when he made his video, is among the increasing number of companies benefiting from influencer
Taiwan’s property market is entering a freeze, with mortgage activity across the nation’s six largest cities plummeting in the first quarter, H&B Realty Co (住商不動產) said yesterday, citing mounting pressure on housing demand amid tighter lending rules and regulatory curbs. Mortgage applications in Taipei, New Taipei City, Taoyuan, Taichung, Tainan and Kaohsiung totaled 28,078 from January to March, a sharp 36.3 percent decline from 44,082 in the same period last year, the nation’s largest real-estate brokerage by franchise said, citing data from the Joint Credit Information Center (JCIC, 聯徵中心). “The simultaneous decline across all six cities reflects just how drastically the market
RSS