Strong rupee only if people are rich, not high taxes.

The rupee has a better chance of becoming a hard currency than the Chinese yuan, wrote VA Nageswaran and S Thiruvadanthai. "Hard currencies are easily exchangeable, commonly used in international transactions, and generally expected to be stable in the short term. Hard currencies are also widely held as foreign exchange reserves by central banks." The Chinese yuan joined the basket of Special Drawing Rights of the International Monetary Fund in 2016 which gave it the status of a reserve currency. At that time one author (VAN), derisively called it "The 'magazine cover' decision", meaning it was just for show. China has been trying to get other countries to use the yuan in their business with China, but with little success. Having risen to over 2.5% of international payments in 2015 it has come down to around 1.5% in 2018. The yuan fell below 6.70 to the dollar in expectations of the start of US tariffs on Chinese goods on 6 July. China consistently runs a trade surplus of over $250 billion whereas India consistently runs deficits in excess of $300 billion a year. When we are always losing money while China is gaining, it is impossible to understand how the rupee is a stronger currency than the yuan. So why the optimism? Rich countries have large tax bases which gives their governments "ample fiscal capacity", which means they can spend a lot. "The combination of demonetization and the goods and services tax (GST) have dramatically expanded the tax base by bringing more individuals and businesses into the tax net." Wealth owned by 92.3% of Indians is less than $10,000, which is just Rs 680,000, not enough to cover the cost of a serious illness requiring ICU care. So who is widening the tax base? Probably, civil servants who received a 23.55% rise in basic pay and hike in minimum pay to Rs 18,000 per month. Add various allowances and even the lowest ranking officer crosses the threshold for income tax, which is Rs 21,000 per month. Businesses have become formalized which will force them to pay tax. More than 80% of employment is in small businesses in the unorganized sector, with rising female participation, so this sector should be encouraged to grow, wrote E Ghani of the World Bank. Demonetization forced people into financial investments rather than in physical assets, such as real estate and gold. That is supposed to be good because the Indian stock market has been steady, while other emerging markets have fallen, because of domestic investors. But bears could be lurking and the market could tank, wrote U Mukherjee. Just last month VAN was warning against the risk of a rupee crash. The Indian government already spends too much and so has to tax heavily to keep fiscal deficit under control. Gimmicks are not going to change that.