Rising Rupee Doesn't Float All Boats

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It's no surprise that Indian exporters are complaining about their country's strengthening currency. The rupee's 13% rise against the dollar this year has eaten into the profits of technology and service companies, which typically have close to two thirds of their clients in the U.S. Textile manufacturers, who often operate on silk-thin margins, have also taken a hit as a result of being paid in dollars.

But those Indians rich enough to travel abroad and buy luxury imports have been made even richer by the falling dollar. The prices of some imported televisions, computers and digital cameras has fallen by around 10% in the past month or so, as inventory bought at the new exchange rates starts hitting the shelves. Also cheaper are the cost of some overseas flights and hotel rooms, especially in the U.S. "We've definitely seen growth in outbound traffic since the rupee started strengthening, both at the individual level and at the corporate level," says Madhavan Menon, the managing director of travel company Thomas Cook India.

A growing number of Indians were traveling more often, anyway, thanks to the country's fast-growing economy. Euromonitor International, a market research company, estimates that the number of Indians traveling overseas will more than double to 16.3 million by 2011. But a stronger rupee could accelerate that growth. "The inducement to go this year or next year for some people is down to the rupee," says Menon. "It's making the decision to book a trip easier."

The new exchange rates are also making it cheaper for Indian corporations to snap up overseas firms. This fiscal year, India's total spending on overseas acquisitions and companies (foreign direct investment outflows) could pass $30 billion, according to a study by the Federation of Indian Chambers of Commerce and Industry and Ernst & Young. That would more than double what corporate India spent abroad in the 2006-07 fiscal year, and would reflect a net outflow of FDI for 2007. And the most high-profile deal may be yet to come: Indian car firms Tata Motors and Mahindra & Mahindra are two of the three final bidders for British auto makers Jaguar and Land Rover, which are being offloaded by U.S. giant Ford.

And despite exporters' grumblings, October's export earnings were actually up 35% in dollar terms from last October, a still respectable 18% in rupee terms. In the past week, the rupee has actually begun to slip a bit, partly because of worries about the high oil prices. But when economists look back at 2007, they will probably see it as a turning point in the currency's fortunes. For decades, the rupee has steadily depreciated. Now it seems to have turned a corner. One inkling of the significance of the change can be seen in the entrance fees to monuments such as the Taj Mahal, which have traditionally offered a rupee rate to locals and a higher, dollar rate for foreigners. Last month the government stopped accepting dollars at national monuments, because their value in rupee terms had dropped so much. Foreign tourists will now have to pay the same way as Indians do: in rupees.