Impact Of Indian Rupee Getting Weaker Against Dollar
Prior to the period of economic liberalisation in 1990s, India followed a fixed Exchange rate system.
Indian Rupee was linked to U.S dollar and a basket of other currencies. India started having balance of payment problems since 1985 and by the end of 1990 it found itself in a serious economic trouble.
The purchasing power of U.S dollar higher due to low inflation. It is subjected to Demand and Supply of resources and for developed countries it is normally low because over a period of many years, a certain stability has been achieved with, estimating the demand and supply constraints. These countries have taken proper measures to regulate the demand of such tight resources and Goods and Services by establishing proper trade channels.
In developing countries like India, Brazil etc. which are still growing, estimation processes can vary
as much as 20%; due to demographical variations. Also, to meet various demands of consumers, when we import more goods we also import inflation, increase our import bill reduce GDP, give out
our Forex which in turn put pressure on the capacities and reduces per capita GDP.
Factors weighing down the Rupee are -
- Widening trade deficit.
- India's annual retail and wholesale inflation accelerated due to high fuel and food prices.
- Trade deficit widened.
- Sharp rise in dollar yields
- Outflow from domestic capital markets.
Paired with the unexpected outcome of U.S. Presidential elections the main reason for dragging the Rupee down can be accredited to the strike on Black money via demonetization of high value currency notes and weak industrial output. The U.S currency, in turn, has strengthened based on speculations that the policies U.S would be inflationary and lead to a rise in the interest rates, thus impacting foreign money flow to countries like India
The dramatic slide of Rupee is because a steep depreciation raises Import bill further worsening the CAD and given that India imports around 70% of the oil that it consumes, unless it becomes entirely self sufficient, bringing the imports down will be a challenge. While such a development is bound to be profitable for exporters, total exports have failed to overcome imports and so deficit has only widened. Govt. is looking to boost the Rupee by encouraging more foreign capital flows in the country. But, before implementing any such moves, Govt. needs to understand why capital is leaving the country? Policy inactions, unfavourable tax rules, scandals and coalitions infighting have been some of the main reasons.
By all indications, most of these global cuts are unlikely to change much in immediate future, so Business and individuals in India need to brace themselves.
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Indian Rupee was linked to U.S dollar and a basket of other currencies. India started having balance of payment problems since 1985 and by the end of 1990 it found itself in a serious economic trouble.
The purchasing power of U.S dollar higher due to low inflation. It is subjected to Demand and Supply of resources and for developed countries it is normally low because over a period of many years, a certain stability has been achieved with, estimating the demand and supply constraints. These countries have taken proper measures to regulate the demand of such tight resources and Goods and Services by establishing proper trade channels.
In developing countries like India, Brazil etc. which are still growing, estimation processes can vary
as much as 20%; due to demographical variations. Also, to meet various demands of consumers, when we import more goods we also import inflation, increase our import bill reduce GDP, give out
our Forex which in turn put pressure on the capacities and reduces per capita GDP.
Factors weighing down the Rupee are -
- Widening trade deficit.
- India's annual retail and wholesale inflation accelerated due to high fuel and food prices.
- Trade deficit widened.
- Sharp rise in dollar yields
- Outflow from domestic capital markets.
Paired with the unexpected outcome of U.S. Presidential elections the main reason for dragging the Rupee down can be accredited to the strike on Black money via demonetization of high value currency notes and weak industrial output. The U.S currency, in turn, has strengthened based on speculations that the policies U.S would be inflationary and lead to a rise in the interest rates, thus impacting foreign money flow to countries like India
The dramatic slide of Rupee is because a steep depreciation raises Import bill further worsening the CAD and given that India imports around 70% of the oil that it consumes, unless it becomes entirely self sufficient, bringing the imports down will be a challenge. While such a development is bound to be profitable for exporters, total exports have failed to overcome imports and so deficit has only widened. Govt. is looking to boost the Rupee by encouraging more foreign capital flows in the country. But, before implementing any such moves, Govt. needs to understand why capital is leaving the country? Policy inactions, unfavourable tax rules, scandals and coalitions infighting have been some of the main reasons.
By all indications, most of these global cuts are unlikely to change much in immediate future, so Business and individuals in India need to brace themselves.
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