Rupee Strength Cuts India Dependence on World by Most Since 1991

The dependence of India’s economy on the rest of the world fell by the most since 1991 this year. Blame the rupee.
The currency gained more than 6 percent since April against a basket of its trade partners’ currencies measured by the real effective exchange rate, making it harder for companies to sell goods overseas as China’s slowdown damps demand. Trade openness, or the proportion of such flows to gross domestic product, has fallen the most in 24 years, posing a challenge for Prime Minister Narendra Modi’s plan to double exports to $900 billion by year 2020.
“We are losing our competitive edge to others,” said Ajay Sahai, chief executive officer at the Federation of Indian Export Organisations in New Delhi, which says it has more than 14,000 members. “Currencies in our competitor countries have depreciated at a much sharper rate than the rupee.”

India’s overseas sales have fallen for 12 straight months, dragged down by oil prices and weak demand in developed economies. The drop in exports, which came even after a free-trade agreement with Southeast Asian countries, indicates the role of currency competitiveness and could be a concern as the yuan weakens, the Reserve Bank of India said in its Financial Stability Report published Dec. 23. It also noted risks from the Trans-Pacific Partnership, a 12-member free-trade grouping that doesn’t include India.
"With around two-fifths of world output and a quarter of global trade, TPP is expected to be a game-changer," analysts at Crisil Ltd., a local unit of Standard & Poor’s, wrote in a report this month. "This is not good news for India." They recommended India lower its trade barriers and quickly agree bilateral trade deals with TPP members such as Australia and Canada.

Credit BLOOMBERG