Thursday, April 15, 2010

Is CII an exporters’ lobby?

Reading this (CII seeks RBI's intervention in currency markets, Business Standard) statement by the CII, one wonders what role it wishes to play in the Indian Economic landscape.

Asking the RBI to intervene to keep the Rupee weak is the most biased position that a general industry body can take in any scenario. Especially one that supposedly represents the largest cross section of industry in India.

In the current scenario, the impact of their demand will be amplified. Commodity prices are rising again; Oil prices have almost doubled in the last one year and so have the prices of most metals. Some metals, like copper, have shown price jumps of more than 200%

Any intervention to weaken the Rupee will result in higher inflation as it would translate directly into higher domestic prices for fuel, metals etc. Allowing international price inflation to translate into domestic price inflation at this time would wreak havoc in the domestic economy. 

Prices of almost all manufactured items will rise, forcing the RBI to hike interest rates (which CII would oppose). This, in turn will result in subdued domestic demand, and hurt our domestic economy which, incidentally, is over 4 times our exports. More details are available in an earlier post, Fallacies… I.

So when the CII asks for RBI intervention to weaken the Rupee, it is effectively lobbying for a measure that will benefit exports at the expense of the domestic economy. It seeks to make a “special interest representation” with the credibility of its general industry credentials.

It can’t have both.

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