- 2024-07-03
- News
U.S. Indices Rise Amid Sharp Depreciation of Indian Rupee
Recently, due to the rise in the US dollar index, both China and Japan are busy selling US debt to protect their own currencies and minimize the impact of the rising US dollar index.
Unexpectedly, India was the first to bear the brunt. The Indian currency, the rupee, has been continuously falling due to the rise in the US dollar index, even nearing its lowest point since 1983.
With no other choice, India can only use its foreign exchange reserves, continuously selling dollars to stabilize its own currency. Why doesn't India follow China and Japan's example in using US debt to stabilize the rupee? If the US dollar index continues to rise, how will India break the deadlock?
India uses dollar reserves to save the market
Recently, to cope with the continued decline of the rupee, the Indian government had no choice but to activate its foreign exchange reserves, using the dollars in the reserves to enter the foreign exchange market and save the falling rupee.
Ultimately, after the Indian government injected nearly 50 billion dollars into the foreign exchange market, the rupee temporarily stabilized, but India's foreign exchange reserves decreased to 657.9 billion dollars.
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The main reason India sold dollar foreign exchange reserves instead of choosing other ways to save the rupee is still closely related to India's actual situation.
This actual situation is mainly reflected in India's economy, India has been busy developing its economy in recent years, especially in foreign trade.
With the relationship between Russia and Western countries becoming rigid, India has been busy acting as a second-hand oil dealer, importing oil from Russia and selling it everywhere, making a fortune.
However, in reality, India's foreign trade is in deficit. To put it bluntly, although India is busy non-stop, it is actually losing money in foreign trade.
For example, last year, India's deficit for the year was 238.9 billion dollars, compared with India's foreign exchange reserves, India's deficit is indeed quite serious.
The emergence of India's trade deficit is still related to the imbalance of India's domestic economic development and industrial structure.
Compared with China's development of foreign trade, which mainly focuses on developing manufacturing and then vigorously developing trade imports and exports, India's foreign trade development is different.
Apart from some industries with manufacturing support, such as the pharmaceutical industry, most of India's trade mainly involves importing goods from other countries, especially China, and then selling them worldwide.
Over the years, the Indian government has also tried to develop India's manufacturing industry, and many enterprises have gone to India for development. However, most of these enterprises are labor-intensive industries that require a large number of people to work for a long time, ultimately winning with quantity.
This is still a bit difficult for India. Although India's population is comparable to China's, due to the economic development gap between the north and south, a serious caste system, and the imbalance of education in India, it has seriously affected the development of India's manufacturing industry.
Where will India go in the future
Due to the complexity of India's actual situation, even if India holds about 200 billion dollars in US debt, considering India's relationship with Western countries and other factors.
And considering India's actual situation, if the US dollar index continues to rise in the future, compared to using US debt to save the Indian economy, India may still continue to use dollar foreign exchange reserves to save the Indian economy.
However, India cannot sell all of its dollar foreign exchange reserves. If India really sells all of its dollars, then India's domestic money supply will decrease, which may trigger the risk of deflation and economic recession.
If it really comes to that time, even if India wants to develop its economy, whether it is the construction of infrastructure or the vigorous development of manufacturing, the financing costs for enterprises will increase, and India's domestic economy will fall into a vicious cycle.
Of course, India can also give up saving the rupee in the foreign exchange market and choose to continue developing its own economy, but if India develops its economy, infrastructure construction must keep up.
Although India has a superior geographical location, it is still not ready in terms of technical infrastructure construction, especially in railway and high-speed rail construction.
If you have seen Indian movies and TV shows, or related Indian news reports, India's infrastructure construction, such as when taking a train, is already too crowded to get on, and many people dangerously stand or sit on the train in other ways.
In addition to India's infrastructure construction, another issue is India's development of the manufacturing industry, which is different from China's.
Many enterprises that have developed in India thought that Indian workers would be as efficient and easy to manage as Chinese workers, but in reality, Indian workers pay more attention to their own feelings than work efficiency.
The key is that when the Indian government attracts foreign investment and foreign enterprises to enter India, many preparatory works have not been done well, which has disappointed some foreign enterprises and capital, and some have chosen to go to Vietnam.
Actually, no matter whether India uses dollars to enter the foreign exchange market to ensure that the rupee does not depreciate too quickly, or India uses dollars to develop its domestic economy.
For India, India's foreign exchange reserves are now so much. If the Reserve Bank of India raises interest rates, the financing costs for enterprises will inevitably increase, and Indian enterprises may face the risk of bankruptcy.
India's use of dollar foreign exchange reserves to save the foreign exchange market this time may be important for the development of India's domestic economy, but protecting the rupee and the development of India's foreign trade are more important.
But if the US dollar index continues to rise, it is unknown whether India can really withstand it?
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