Rupee Exchange Rate Dynamics from 1993 to 2011: A Study of Factors Driving the Exchange Rate

Abstract: This paper attempts to study the factors driving the Rupee exchange rate and reasons for its sustained depreciation over the period since 1993. A statistical analysis is carried out to identify significant factors and regression models are developed to validate the assumptions. Solutions that can mitigate the depreciation of the Rupee are presented

Link to the full paper on IOSR Journal of Economics and Finance

The Paris Agreement of COP 21

The Paris Agreement of the COP21 has the following salient features:

1. Urging all parties to ratify and implement the Doha Amendment to the Kyoto Protocol.
Present ratification status of the Doha Amendment can be seen here: Link

The Doha Amendment to Kyoto Protocol: At a glance (This is roughly 20% emission reductions over the 1990 levels.)

2. Setup a fund by 2020 that provides 100 billion USD annually for mitigation and adoption.

3. Notes that 55 Gigatonnes of emissions reductions are necessary by 2030 to keep the temperature rise less than 2 degrees celsius in the worst case. The intended nationally determined contributions aggregated over all countries should fall in this range.

Link to the full document:

Link to the full document.

Is further depreciation of the Rupee exchange rate going to be sustainable?

This blog post is a repeat from a blog I made around one year ago, on an older blog which can be found here: http://niravdesai1209.wordpress.com/ The blog was titled "Can the Rupee drop below 60 to a US Dollar in a sustainable manner?"

Firstly, the Rupee is slipping due to the widening Current Account Deficit (CAD). Foreign fund inflows into financial markets and goods and services exports are the 2 main factors contributing to a stronger Rupee and import of oil, gas and coal is the main factor contributing to the weakening of Rupee.

As  the Rupee weakens, the imports of oil, gas and coal become more expensive and alternative energy sources such as wind, solar and nuclear power become more economically attractively. Moreover, wind and solar power have 0 operating costs and are not affected by inflation at all.

Back in 2013, TATA Power was able to sell coal power from its Mundra Plant at 2.5 rupees per unit. Solar power was priced at 7 Rupees per unit, subsidies brought it down to 5.5 Rupees per unit. Wind power was priced at 4 Rupees per unit or less on average.

Reference: The Hindu story on Power Prices in 2013

Rapidly increasing solar cell efficiencies and system design improvements have brought the price of solar power to Rs. 5 per unit in March 2014.

Reference: The Economic Times story on Cost of Solar Power

Now if we factor in a 5% inflation and a rising price of imported coal (which is about 60% of total coal consumed in India), in another 1 year with the Rupee at 61-62 to a US Dollar, solar and wind power will be cheaper than coal and natural gas in India.  This will reduce the demand for imported coal and the Rupee may stabilize at around 61-62 to a US Dollar.

Reference: Generation costs of imported coal based power are going up

In a free market economy, where the most cost effective power source is used, it is hard to drive the Rupee below 61-62 to a US Dollar in a sustainable manner. I don't see that happening.

What are your thoughts?

Here is the chart from the IEEFA document corroborating my claims:

IEEFA Briefing on cost of solar, wind and coal power in India

Presentation prepared on SAP LUMIRA with data from Government report on the Energy Industry in India which can be found here: Energy Statistics 2013

Trends in the Energy Industry in India from Nirav Desai