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India’s Currency Market Signaling Big Changes for Students

India’s Currency Market Signaling Big Changes for Students

With 2018’s third fastest growing economy in the world, international expectations for India in the next few years are higher than ever. This stems from recent opportunities and increased investment both from national and international entities, which have been unlocking an immense amount of potential that has so far been largely left untapped.

While this is not necessarily mirrored by the worth of the rupee, the larger implications, especially for students, seem to point to a position that can be more advantageous than the uninitiated might think. Before looking at these changes, it is important to understand the basis of India’s current situation and what key components have created this modern shift.

Rising international investment

Many larger businesses and organizations have been reticent to invest in Indian business as flaws within their market system have left holes that few major parties were comfortable addressing. One of the most major additions to their economy, which has signalled significant confidence, has been the recent implementation of goods and service tax.

By lowering the barriers to international trade, this is expected to pay dividends in the form of massive international investment as it effectively establishes a free-trade agreement to a market of over 1.3 billion people.

            “investment” (CC BY-SA 2.0) by Nazir Amin

The other arm of this comes from the direct monetary impact of Forex trading with new investors. The traditional issue here is that Forex trading in India is comparatively new, so much so that many potential investors are a little confused about the legality of this type of investment. As the Royal Bank of India has officially ruled that trading with currencies online is not allowed, it’s understandable that many are scared off.

What has taken the place of this is the entirely legal system of trading currency derivatives. Through a recognized stock exchange, as defined in the Securities Contract, international traders can easily trade via this method. The simplest way that this form of forex trading is now commonly accomplished is by contacting a SEBI (Security and Exchange Board of India) regulated broker, which can be done either by traditional methods or via the internet.

Strengthening of international economic relationships

In October of 2018, India and Japan signed a bilateral currency swap agreement for $75 billion. Expected to bring stability to the foreign exchange and capital markets in the country, this swap agreement was met through the central banks.

     “Trading with SimpleFX WebTrader” (CC BY-SA 2.0) by SimpleFX

The benefit here comes from the easing effect this has on their shared trade. Now, dollars would not be required as the base currency, and instead, the two could deal directly with the yen and rupee. This also has the added effect of allowing India a vast quantity of foreign currency on hand should an emergency arrive that requires the attention of additional international funds.

This is further aided by more regional developing relationships, as seen by the recently signed customs treaty between India and the Netherlands. As international trade between the two nations already accounted for over 7 billion euros in 2017 alone, this growing economic friendship is poised to only further lower the difficulty in exchanging goods.

Fall of the rupee

Despite all of these positive developments, the value of the rupee is yet to directly reflect this improvement in international relationships and investment. This was mirrored by a $394.5 billion drop in India’s forex reserves in the week leading up to October 12 2019, the largest single-week fall in 7 years.

This forex drop is considered by industry professionals to be the result of the elevated level of crude oil prices and the firm strength of the dollar.

It is important to note here that while these changes might seem counter-intuitive, especially given the positive news in the first half of this article, positive changes are often not met with immediate results. On a scale of an entire economy, especially one as large as India’s, the changes tend to be slower and cumulative, with more major developments finding traction years down the path.

How will these changes affect students and people generally?

For those coming from within India, this might seem a negative development, but for some, especially students, this is not entirely the case. Students from India traveling to study and then working overseas, for example, could find themselves actually saving money should the current downtrend of the rupee continue.

To understand this, we need to look at just how this situation might play out. Imagine an Indian student takes out a loan to go overseas and study. In this, their loan would be in rupees. As many students choose to stay overseas and work post-study, they would then be earning currency in their new countries. Should this currency benefit from the lower value of the rupee, as the current trend predicts, then the relative cost of repaying the original loan, given the exchange rate, would then come out in favor of the student.

                “Akshat Goel” (CC BY-SA 2.0) by kinshuksunil

In terms of the average person within India, their general costs should remain relatively constant, unless of course they depend on heavy quantities of international trade. In fact, the general increase of foreign and domestic investment within India should lead to a net positive of changes in terms of both infrastructure and technology.

Finally, for those outside of India looking to invest or travel within, these developments would signal an even more inviting opportunity on both fronts. A stronger currency against the rupee means that travel to popular tourist destinations is easier than ever. Combined with the increase in tourism investment, the result is not only a most cost-effective holiday, but one that is even better suited to outside travelers.

Investment looks primed for additional interest based on the eventual progress that many industry commentators expect from the country in the long-term. While the immediate costs are low, history has shown that similar developments like those we see in India have a ramping-up effect, where opportunities, once the nation reaches its potential, should be extremely lucrative for those already engaged.

In simple terms – there has never been a better time to travel to or invest in India. Expect to see great international progress from the nation within the next few years and beyond.

 

 

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