[Economy] A story of Forex, currency conversion, rupee depreciation, inflation, subsidies etc.DEVENDRA VISHWAKARMA
Again in the fond memories of Dev Anand.
I’m writing this story so that the newcomers can get some idea about Forex, currency conversion, rupee depreciation, inflation, subsidies etc. (caution : full of technically not-so-correct examples, just to give you a broad idea of what ails Indian economy) Ok here it goes…..
Investor: Faith won and lost
Enter an American Mr.James. Thanks to American recession, he decides to invest outside USA, and comes to India with a bag full of green dollars, after he was assured by RBI and Commerce Secretary that environment in India is very conductive for business. Please come, give us your dollars, we convert it into rupees.
He (full of confidence) converts his dollars, at the rate of 1$=Rs.40
Now James searches for land to open office or factory somewhere near a big city in India. But price of land is so high thanks to the black money, it doesn’t make any sense buying a property.
He says ok, let me just ‘rent’ some readymade building and I’ll starting a small-scale i-phone production company.
But the electricity shuts down at random, for hours and days.
James: ok, I’ll buy a diesel generator like every other industrialist in this area.
Again price of Diesel also increasing, Profit margin shrinking.
Adding insult to the injury, his workers have gone on strike. Workers are demanding pay-rise because of the ever increasing prices of milk and petrol and James unable to settle the dispute so a lengthy (and expensive) legal battle is drawn. Meanwhile the factory remains closed for weeks and months together.
James: let me start a coffee house to pay lawyers’ fees.
But the price of raw material (milk,sugar,gas) also increasing.
Add the bribe he has to pay to local goons, policemen, and municipality corporators. If he raises the selling price of each cup, there will be drastic reduction in customers. Again Hardly any profit margin left.
Moreover frequently one political outfit or another, calls for a ‘strike/bandh’ for creation of separate state or to protest against inflation or corruption or lokpal or just because someone slapped their political leader.
James dares to open his shop on such ‘Bandh day’ and he is beaten up severely by the political goons, his coffeeshop is ransacked while police watches silently.
His calls his buddy Allen in America, cautions him not to invest in India.
Currency Speculations @ Forex Market
At the local beer-bar in California, Allen overhears some conversation between drunkards that soon IMF and world bank will give big financial aid to the ailing Greek and Portugal, and their economies will be back on right track. If one invests money at this point, in stock market or real-estate in those countries, he could get a handsome return of 40-50% a year.
Allen recalls a Bollywood movie he saw on youtube with English subtitles, the handicapped old-man in that movie had given a profound and universally applicable Management advice: “Lohaa garam hai maar do hathoda”
Allen immediately runs to Forex market, with his bag full of dollars to get them converted into Euro.
Crude Oil Bill
Curiously, Chairman of IOC (Indian oil corp.) is also waiting there @Forex market, with a suitcase full of rupees. He is in desperate need of dollar$ for King of Saudi doesn’t accept payment in Rupees for the crude oil sold.
IOC Chairman: dude got any dollars? Come on man. I need them, please.
Allen: How much?
IOC Chairman: You know the routine rate. 1$ for 40 rupees.
Allen: Hell NO!!! I ain’t selling. My best friend told me not to.
IOC Chairman: ok ok how about 45 rupees for a dollar.