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Indian rupee, Chinese demand & more

May 21, 2008

Rupee losing sheen?
The Indian rupee's movement in the past one year has been marked by considerable ups and downs. After sharply appreciating by around 11% against the US dollar in 2007, the currency has declined by around 8% since the start of the year. One of the reasons for the same could be attributed to the rising commodity prices especially oil, which continues to test new highs.

  • Math behind the rupee's strength

    Besides supply related issues and geopolitical uncertainties, unquenchable demand for oil from China and India has been responsible for the escalating prices of crude. Since retail prices of oil in India are subsidised, Indian consumers are being shielded from the impact of the rise and hence the demand has remained robust. Thus, an unlikely event of the government raising prices of oil at the retail level will exacerbate an already rising inflation, which is hovering tantalizingly below the 8% mark. Also, the trade deficit could widen further going forward as the falling rupee would inflate the oil import bill despite strong growth in exports.

    Surviving natural and man made disasters
    These are indeed testing times for the world and Asia in particular. Besides the subprime mess and rising commodity prices, which continue to make countries across the world wince, the last two weeks have seen Asian countries being hammered by both natural and man made disasters. First, Myanmar was scarred by the fury of a cyclone, then China was rocked on its heels by a powerful earthquake, and then India was ripped by the bombs in the pink city Jaipur.

  • Read what could impact India's growing aspirations

    While it is difficult to predict the onset of disasters, what holds considerable importance is the prompt and swift measures undertaken by the governments for damage control. Much has been said about the contrasting responses elicited by Myanmar and China (both suspicious of outsiders) after the disaster. While Myanmar has been very slow in undertaking relief measures and has not been supportive of allowing foreign aid into the beleaguered country, China in comparison has been swift in providing aid and appealing to the outside world for help. This could probably be attributed to China's eagerness to be held in favour by the outside world after the flak it had received for the way it tackled the severe snowstorms that it faced in January and the anti-Chinese unrest in Tibet.

    China's unsatiable demand
    China's soaring appetite for oil seems to be worrying the US. As per reports on the CNN Money website, China is being coaxed to join the International Energy Agency (IEA) in a bid to cool down the impact of the surging crude prices. China is the second largest consumer of oil behind the US and, along with India, has been labeled as a catalyst for contributing to the rise in oil prices backed by a healthy demand. That said, China seems to be taking all steps necessary to make itself oil sufficient and many of its state owned companies are buying blocks in the strife ridden Africa and Central Asia; a fact which has not gone down well with its international peers. Besides oil, minerals also seem to be on the Chinese government's radar.

    The Economist states "The Chinese authorities, it seems, are so anxious to obtain enough minerals to sustain their country's remarkable economic growth that they are willing to invest billions in a dirt-poor and war-torn place like Congo - billions more, in fact, than Western governments and investors combined are putting in. And Congo is not the only beneficiary of China's hunger for natural resources. From Canada to Indonesia to Kazakhstan, Chinese firms are gobbling up oil, gas, coal and metals, or paying for the right to explore for them, or buying up firms that produce them.

    Big Pharma eyeing emerging markets
    While the financial markets across the world have in recent times identified emerging markets as the place to be in influenced by the strong GDP growth rates, the pharma industry in these emerging countries have also been garnering much interest of late. The focus of Big Pharma (large pharma accompanies of the US) so far had been on developing new drugs catering to the chronic diseases, afflicting a large population in the developed markets. This enabled them to amass considerable revenues and profits. The slow growth outlook in these developed countries, however, has shifted the limelight back to the emerging markets, India being one of them.

  • Pharma's product patent dilemma

    McKinsey, a consultancy firm, estimates that the value of the Indian drug market will grow from US$ 6.3 bn in 2005 to US$ 20 bn in 2015 (CAGR of 12%). Taking India, for instance, what prevented Big Pharma from making considerable investments in the country was the lack of patent protection. Even three years after the introduction of the product patent law, ambiguities continue to exist. Patent laws or lack thereof have been hampering Big Pharma in Brazil, China and other countries as well. Having said that, despite these hurdles and the fact that growth in developed markets is slowing down, Big Pharma will have to adapt themselves to the regulatory environment of these countries, if they want these emerging markets to contribute significantly to their overall performance in the future.

  • Why is Indian pharma focusing on emerging markets?


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