Feb 5, 2008|
Indian rupee, trade balance & more...
A slumping dollar and rising inflows into the country has led the Indian rupee to appreciate considerably in the last one year. With the US Fed going on an interest rate cutting spree in a bid to prevent the US economy from going down in the doldrums, the outlook for the dollar continues to remain bleak, which means that the rupee could remain at these appreciated levels. The RBI keeping interest rates steady and the US Fed going in for rate cuts has led to the widening of interest rate differential between the two currencies. This probably strengthens the case for more FII inflows into the country.
Having said that, given the impending recession in the US economy and its impact on other global economies, there is a possibility that foreign investors might look to protect their investments by keeping the same in cash rather than invest the same in emerging economies (including India). If this happens, and the RBI also intervenes in the forex market, any further appreciation of the rupee might get arrested. One also cannot ignore the firm crude prices, which will exert downward pressure on the rupee every month when the import payments become due.
India's merchandise exports posted a growth of 21.9% during the period April-November 2007. Against this, growth in imports stood at a higher 26.9% and was largely due to non-oil imports, which recorded a substantial increase of 35.3% (21.3% in the corresponding period last year). Oil imports during the said period showed a sharp deceleration in growth (9.8% as against 42.0% in April-November 2006) and could largely be attributed to the steep rupee appreciation. As a result, merchandise trade deficit during April-November 2007 ballooned to US$ 52.8 bn (US$ 38.5 bn in the corresponding period last year).
However, the current account deficit was restricted to US$ 10.7 bn and this was largely due to robust growth in invisibles, which have considerably softened the adverse impact of a widening trade deficit. Net surplus under invisibles (services, transfers and income taken together) was higher at US$ 31.7 bn in April-September 2007 (US$ 23.4 bn in April-September 2006), reflecting mainly the rise in remittances from overseas Indians, higher interest income on reserves and relatively moderate rise in payments of business services.
Overall, the balance of payments recorded a surplus of US$ 40.4 bn during April-September 2007 (US$ 8.6 bn during April-September 2006) due to substantial net capital flows. These largely emanated from FDI (US$ 13.8 bn), FIIs (US$ 26.8 bn in the current financial year up to Jan 11, 2008) and ECBs (US$ 10.6 bn). While the FDI money that is coming in is essential in terms of boosting economic development and generating returns, the government will have its hands full in curbing any volatility in FII inflows going forward.
Big Pharma's mettle continues to be tested with the US FDA becoming more stringent when it comes to approving and labeling new drugs in the market. While the controversy surrounding 'Avandia', GSK Plc's anti-diabetes drug, is well documented, the latest in the FDA's line of fire is Pfizer's smoking cessation drug 'Chantix', which has been linked to suicidal behaviours among patients taking the drug. This only further compounds the problems that Big Pharma has been facing for a while now namely, weakening drug pipeline, patent expiries of blockbuster drugs and intensifying generic competition.
Juxtapose Indian pharma's R&D efforts against this global backdrop and it is evident that the going is not going to be easy for Indian companies. The R&D programmes of Indian pharma
are still in the nascent stages in comparison to their global counterparts. The riskiness for domestic companies is also higher, as they have only four to five molecules in the pre-clinical stages, which is considerably lesser than their global peers, who have 200 odd projects under various stages of development.
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