Exchange rate stability

This refers to ‘Re depreciation can be slowed’ (January 8). Exchange rates between two currencies are fundamentally influenced by the inflation rate differential between the respective countries. However, multiple internal and external factors come into play when determining exchange rates. While some factors are controllable, others are not.

For instance, ensuring export competitiveness and controlling inflation often go beyond a country’s direct control. Consider China, which employs a fixed exchange rate policy to artificially keep its currency (yuan) undervalued, thereby enhancing the competitiveness of its products. In such scenarios, countries like India may lose their market share in the international arena, as their products become comparatively costlier.

Additionally, rising crude oil prices significantly impact domestic inflation, further devaluing the local currency. While India can attempt to manage inflation through monetary and fiscal policy measures, geopolitical factors, such as the current global tensions, exacerbate imported inflation, which heavily influences domestic inflation levels.

To effectively tackle exchange rate fluctuations, the RBI needs to build up forex reserves during favourable periods.

Srinivasan Velamur

Chennai

Arresting rupee slide

The slide of rupee must be dealt with curative measures. Augmenting foreign exchange reserve, reducing trade deficit, increasing foreign investment, currency intervention through dollar dealings, diversified exports and improved economic fundamentals will help stabilise the rupee.

Tightening the screws of capital controls will prevent high dollar outflows. NRIs must be motivated to send more remittances, which could also help stabilise the rupee and prevent further slide.

NR Nagarajan

Sivakasi, TN

Measuring growth

Apropos ‘Final GDP numbers could improve’ (January 8), with India’s economy expanding, one is quite sanguine that the GDP numbers in the final quarters of the current financial year will improve. After all, GDP is the money value of all final goods and services produced in the domestic territory of a country in a year and it includes exports too. But, what is most important in a developing nation like India is that how well the produced commodities are distributed in the country. It is known that there is uneven distribution of them which affects the overall welfare of the people.

The government and the RBI should publish the net domestic product at factor cost periodically, because it is a better indicator of growth or progress than GDP.

S Ramakrishnasayee

Chennai

Growth forecast

According to the first advance estimates released by the National Statistics Office (NSO), the Indian economy is expected to grow at 6.4 per cent in 2024-25, lower than the 8.2 per cent registered last year. Not only the manufacturing sector but also construction, electricity, gas, and water supply segments are likely to face deceleration along with the services sector. However, private consumption is projected to accelerate. Given the global and domestic uncertainties, the upcoming Budget should unleash concerted measures to boost demand and spur private investment to drive growth.

M Jeyaram

Sholavandan, TN