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Friday, 4 October 2013

How the value of rupee depends on dollar?

The value of a currency depends on factors like
1. Imports and exports
2. Inflation
3. Employment
4. Interest Rates
5. Growth rate
6. Trade deficit
7. Performance of equity markets
8. Foreign exchanges reserves
9. Macro economic policies
10.Foreign investment inflows
11.Banking capital
12.Commodity prices and geopolitical conditions.
We discuss detailed about these factors how they influence the currency.

Imports and exports:
A country that sells(export) more goods and services in overseas market means more foreign currency comes into the country.At the same time the country which buys(import) more from other country means it has to pay in the form of foreign currency.
The country which exports more than what it imports from other country has a trade surplus.It means more foreign currency comes into the country than what is paid for imports.This strengthens the local currency.

Inflation and growth rate:
The difference between the money flow in the economy and the economic growth is called the inflation.
If the growth in money supply is more than the economic growth then the inflation will move very quickly.If the growth of money supply lags economic growth then the economy will face deflation(negative inflation).
Prices increases means the value of the currency has gradually decreased and the purchasing power of people will fall.This inflation deduces consumption then the industries will get hurt.Imports also become costlier, but exports earn more in terms of local currency.

Income level of the people influences the currencies through consumer spending.When income increases people spend more.Demand for household products increases the production of industries.If the demand for imported products increases the demand for foreign currencies and this will weakens the local currency. 

Interest rates:
The difference in interest rates between countries also influence the currencies.RBI manages the value of rupee with several tools like controlling its supply in the market and thus making it cheap or expensive,changes in interest rates,relaxation or lightening of rules for fund flows,tweaking the cash reserve ratio(CRR),Selling or buying dollars in the open market and also fixes the statutory liquidity ratio(SLR).

Trade deficit:
Trade balance means the net inflow and outflow of money and the flow of capital also affects the value of a country's currency.

Foreign exchange reserves:
Today international trade and movement of people increasing rapidly, there is no currency that is acceptable across the globe.Whether you go for higher studies to the US for vacation,you have to pay for services and goods in the currency that is accepted in that country.Even while shopping online on stores run by foreign companies, you have to pay in foreign exchange.
The foreign exchange rate for conversion of currencies depends on the market scenario and the exchange rate being followed by the countries.Most countries adopt a mixed system of exchange rates where reserve banks intervene int he market to buy or sell the different currencies to control the movement of their own currencies.


Saturday, 2 March 2013

Union Budget 2013-14

On 28th February 2013,Finance minister P Chidambaram presented the Union Budget in Parliament.

Total Budget expenditure seen at 16.65 trillion rupees

Non-plan expenditure estimated at about 11.1 trillion rupees.

2013-14 plan expenditure seen at 5.55 trillions

100 billion rupees towards spending on food subsidies.

1. Defense sector: 
                                    The allocation for capital expenditure for the defense sector has increased by almost nine percent at Rs 86,741 crore in budget 2013-14. Its a good sign for development. India is at 7th place to spend for military. US and China are at first and second place so it needs to modernize the force and materialize some big deals. Finance minister also promised to provide any additional funds required for national security.

2.Agriculture and allied sector: 
                                    The government announced three new schemes with budget allocation of over Rs 1,000 crore.Expenditure for the agriculture ministry has been raised by 22% to Rs 27,049 crore, of which the agricultural research will be provided with Rs 3,415 crore.
Finance minister proposed Rs 500 crore to encourage farmers of Punjab and Haryana to switch to alternative crops from traditional rice and wheat.

  •  To deal with malnutrition, P Chidambaram allocated Rs 200 crore for a Pilot Program (PP) to promote cultivation of micro-nutrient rich crops.The ministry of agriculture will formulate a scheme.
  • The ministry also announced the launching of the national live stock mission in 2013-14 to attract investments and enhance productivity taking into account the local agro-climatic conditions. He also proposed to provide Rs 307 crore for the mission.
  • To promote market facilities for farmers, the government announced its support to selling up of FPO(Farmers Producers Organisation) with an allocation of Rs 50 crore matching equity grants for registration. FPO will get a maximum of 10 lakhs to leverage working capital from financial institutions.Besides ,a credit guarantee fund will be created in a small farmers agri-business corporation with an initial corpus of Rs 100 crore.    
3.Health sector: 
                             Finance minister allocated Rs 37,330 crore to the ministry of health and family welfare.
The new National health mission will get Rs 21,239 crore, The finance minister also provided Rs.4,727 crore for medical education,training and research. He allocated Rs.150 crore to the national program  for the health care of elderly,Ayurveda, Unani, Siddha and Homeopathy were being mainstreamed through the national health mission and proposed to allocate Rs 1,069 crore to the department of AYUSH. The six AIIMS-like institutions will get Rs 1,650 crore.

4.Banking sector: 
                               Bank's don't have much to cheer in the Budget. The budget has allocated only Rs 14,000 crore for infusing capital into public sector banks.
As per the RBI estimation, the government will have to infuse additional capital of Rs 90,000 crore in these banks over the next five years. The markets expected at least Rs.18,000 crore this year. 
       With bad loans on the rise and higher provisioning cutting into internal accruals ,capital infusion is crucial. Instead the budget has asked them to lend more to agriculture, at Rs 7 lakhs crore.
 Banks like PNB,BOI,BOBO,SBI etc already have an exposure of more than 12% to the agriculture sector. Under priority sector norms, banks need to lend 40% of their adjusted net bank credit to the priority sector. Agriculture and Micro ans small enterprises(MSE) are two major sectors that receive priority sector lending apart from education,housing.

5.HRD sector:
                                Finance minister was allocated Rs 65,867 crore for education sector.Which is an increase of 17% over the revised estimate of previous year.
Rs,27,258 crore to Sarva Siksha Abhiyan(SSA).
Rs 3,983 crore allocated to Rastiya Madhyamic Sikhsha Abhiyan(RMSA).
The RTE(Right To Education) dead line coming to an end on March 31 for fulfilling all provisions.
     The plan expenditure for department of school education has been kept Rs 49,659 crore while the plan expenditure for higher education has been put at 16,198 crore.
The mid day meal programme has been allocated Rs 13,215 crore.
     Chidambaram also appeal to National Skill Development Corporation (NSDC) to set up curriculum and standards for training in various programmes ,for which Rs 1,000 crore will be set aside.

6.Rural development sector: 
                                      Finance Minister proposed to allocate Rs 80,194 crore in 2013-14, making an increase of 46%.

MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) will get Rs 33,000 crore

PMGSY (Pradhan Mantri Gram Sadak Yojana) will get Rs 21,700 crore.
IAY (Indira Awaas Yojana) will get Rs 15,184 crore.

Finance minister also proposed to start PMGSY-11 in some states.
He proposed to allocate 17,700 crore to Integrated Child Development Services(ICDS).
Multi-sectoral programme that was announced last year will be implemented in 100 districts during 2013-14.He proposed to allocate a sum of Rs 300 crore for the programme in 2013-14.

7.Drinking Water and Sanitation Sector:
                                     Finance Minister proposed to allocate Rs 15,260 crore to the ministry of drinking water and sanitation. Allocation of Rs 1,400 crore was also made to set up water purification plants in the arsenic and fluoride-affected rural habitations.