Correlation between TATA's CORUS Deal and Rupee Hitting 8yr High

TATA is buying CORUS with cash and is paying Indian Rupees, at time when India is looking for investments TATA's are silently moving money that they earned here in India to Europe. This deal is neither going to be beneficial to India nor generate jobs in India. On the contrary TATA's are going to exploit Iron Ore resources from Jarkhand and Orissa and export them to the processing plants in Europe that belong to CORUS, instead of processing them in India.

Here are some of the unpleasant side effects of the mega $12 Billion Deal.

Everyone knows that TATA is one of the most influential business groups in India and even Finance Minister has publicly said that he would help TATA’s on this CORUS deal to go smooth.

Chronology of events

Mar 7 : Corus Share holders approved the Deal

TATA spends $2.5 Billion for acquiring 21% stake in CORUS to open market. Indian Rupee instead of becoming weaker remains surprisingly steady.

Mar 27 : Approval comes from UK Court.

Mar 30 : Suspension of trading of Corus shares

Now TATA’s have 14 days till Apr 16th to make the payment after the deal comes into effect.

Apr 4 : Rupee hits 8 yr high at 42.90 against $.

Even an illiterate would know that if $12 Billion of our Forex reserves are going to be moved out of the country, Rupee would become weaker and would fall dramatically but it is becoming stronger and stronger and has hit an 8 year high at 42.90 against $ on Apr 4th..

Here is how the entire Govt Machinery is facilitating in TATA’s takeover:

RBI over a period of time is staying away from the currency market, letting rupee rise faster than earlier and thereby denting the export competitiveness of Indian Exports.

Mar 30 : RBI announces half point hike in Cash Reserve Ratio. CRR is the portion of deposits that Banks should hold in cash. This would suck out 155 billion rupees or an equivalent of $3.5 billion from the banking system. Banks in the scramble to raise such huge cash in a short time sell their $ reserves and suck in Rupees making the Rupee stronger and stronger.

It is everyone’s guess if RBI is tightening the banks to increase the CRR in the guise of plugging inflation or if is trying to keep the Finance Minister’s word of helping TATA on the CORUS Deal.

The Implications of appreciating rupee and loss it caused to India Inc on its export competitiveness is an open question for economists to analyze.

By the way for those who don’t get what appreciating rupee has got to do with TATA’s payments to CORUS. The Stronger Rupee means the less is $ denominated amount that TATA has to pay for CORUS. So the % appreciation in rupee is the % of savings for TATA when they make their payments.

Who pays the price ?

The stocks of export oriented sectors like IT, Parma and Telecommunications will be battered and will impact their future earnings.

CRR hike would hit profits of Banks.

Banks would have less for lending as the amount of deposits that they have to park with RBI is more. In this process your friendly neighborhood bank are likely to reject your Home Loan and Personal Loan requests.

If you are an NRI, your hard-earned currencies are going to fetch you less during conversion.

Apparently it looks like everyone is paying a price (contributing alms) for TATA’s CORUS Deal.

Any other views on this are welcome.