Effects On Indian Economy When One Rupee Equals To One Dollar

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In 1947, India was not engaged in trade and had no external borrowing, so it was not possible for Rupee to be equal to Dollar. India had a very low growth of less than 1% at that time, so it was not possible for the INR to have the same value as equal to USD. Before the Dollar became the standard global currency, INR was measured against the British Pound.  

In 1966, USD was equal to INR 4.76 and after devaluation when it was pegged to USD,  it was equal to INR 7.50. Devaluation happened because India was facing big financial crisis. This crisis effected the foreign currency reserves adversely and INR became unacceptable overseas.  India was unable to pay for imports and the option left was to borrow money from abroad. 

There were several factors which contributed  to the depreciation of Indian rupee against the Dollar like the Capital flows, Crude oil prices, Govt. debt, Current account and balance of payments, Currency war, Dollar index, Inflation rate, Political stability, Interest rates etc. So, Indian Rupee  depreciate against the US Dollar due to a combination of local and global factors, and this trend may continue as India is a developing nation. the exchange rate have a profound effect on the economy.  

As of now, India is the major exporter of goods and services throughout the world. The reason for exports to say for example to USA is because of currency difference since exports generate foreign currency. A comparison, if both Rupee and Dollar are kept at the same level, shall effect the economy in the following manner :

1. Decline in exports -To start with an example, if one consignment of shirts to be exported for Rs.10,000/- which is equal to earning of the same amount in Dollars, then why would anybody like to send because earning will remain the same? They will not be able to cover up for shipment and related charges. The loss, so will discourage Exporters' community. Currency fluctuates mainly with different economic cycles, purchasing power and market forces. So, no exports means no Dollars which will effect International payments capacity, contingencies as also for other unexpected capital needs of the country. 

2. Loss of jobs - Services will vanish in the foreign sector which contribute to a major part of GDP and employment opportunities for citizens as well. When US companies have to pay same salary in dollars to Indian employee, they may outsource the job to workforce from other country. This will tend to increase in unemployment of Indians and will also effect country's economy. People will start working for less pay package which will trigger into the problem of payment EMIs for home loans etc. Banks will have to face huge outstanding loan burden. 

It is a fact that strength of currency is linked with the productivity of the nation. Results of reducing currency value created problems in other countries like Japan in 1986. 

As such, any step to equalize the Indian Rupee with US Dollar will certainly put the economy in the reverse gear. 


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