Its about money, Honey....

The budget is due next week and recent rise in CPI and WPI must have given our own finance minister sleepless nights. The huge task at hand will be to keep the Inflation within acceptable limits of 5-5.5%.
The debate over inflation has pestered me to reasearch on the Indian currency: rupe and its stability vis-a-vis other currencies in the world. The currency system can be broadly classified into six groups i.e

Dollarization: When a country adopts a foreign currency for its transaction within
Currency Board: When the convertibility between the foreign and local currency is unlimited
Pegged: When local currency is pegged at foreign currency
Crawling Pegged:When currency is adjusted periodically based on foreign currency
Managed Float: Centrally managed but dependence on foreign exchange market
Full Floating: Dependence on foreign exchange but not managed centrally.

Indian rupe comes under Manged float type and it is one of the strongest managed floating currency in the world. The currency has dependence on the foreign exchange market however Central Bank has control over this dependence. In our case RBI acts as the central bank and keeps a close vigil on the excessive apprciation and deprication. Due to its dependence several factors are responsible for the value of the currency i.e Inflation, Interests levels, Income, Purchasing power, Productivity and Trade. The first four are interdependent while the last two effect each other.
If India's Inflation levels are higher than US which in the present scenerio is quite true then Indian Rupe face devaluation, and will effect interests rates adversely. High interests rates are detremental to investments which effect might curtail the growth momentum.
Income and purchasing power are correlated and end up depreciating the rupe against the dollor but this dependence is in less productive economies because it strains the resources and balance of payment sheets.
High productivity and International trade enp up appreciating the currency as it brings foreign exchanges and strengthens the currency in the global market.

Its high time Mr PC takes a stand on the FTA agreements with ASEAN and bring the tariff levels close to ASEAN levels so that India can boost its International Trade. Implementation of GST should be expidited so that Inflation can be curbed, with ofcourse rise in productivity in agricultural commodities. The talk of the town is sustainable growth and with rising Inflation inspite of (low crude oil prices) let alone being a superpower it will hard to even sustain till 2020