7/30/2019 depriciation of indian rupee

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SUBJECT - DEPRECIATION OF INDIAN RUPPEE HAS ONLY NEGEATIVE IMPACT ON THE ECONOMY

Indian currency (INR) has depreciated close to 22% IN 2011 & 21% IN 2012. Depreciation leads to imports becoming

costlier which is a worry for India .Indian Rupee is currently caught in this vicious cycle; it will have to find a stable levelto regain investors confidence. The depreciating rupee has serious effects on the external debt & the total external debt

has increased TO 376 USD BILLION by the end of 2012.

Reason

1. Uncertain euro zone: Owing to uncertainty prevailing in Europe in international market, investors prefer to stay

away from risky investments. This has significantly affected the portfolio investment in India.

2. .deficits in imports While a country like China will be more than happy with a depreciating currency, the same doesntapply for India. China exports more than it imports, thus a depreciating currency makes its exports cheaper in the

International market, in turn making China more competitive. India on the other hand does not enjoy this luxury

3. Inflation rates. India has experienced high inflation above 8% for almost three years. Real Effective Exchange Rate(REER) index for currencies- Euro, Yen, Pound Sterling, US Dollar has fallen by 14 % during the last two year . REER

reflects a country's competitiveness in international trade.

MEASURES

1 . Government can buy Indian Rupees from the foreign exchange market by selling its dollars. This would however

reduce the foreign exchange reserves which are needed to fund our imports. Hence this is not a sustainable solution.

2 . The Government can ask companies who have dollar accounts to bring in the dollars back into the country andconvert them into rupee accounts. This would increase demand for the rupee which in turn would stem the slide of the

rupee.

3 . Government can liberalize foreign investments in insurance, aviation and retail, infrastructure sector, agro-basedbusinesses as well as may reduce subsidy from various sectors. This would be one of the better moves as it would bringin serious long term money from abroad.

DOES IT HAVE ONLY NEGATIVE IMPACT ON INDIA? There is a light at the end of the tunnel.. not only India but Brazilianreal, Russian rouble has also deprecating pressure on their currency.. only us dollars and Chinese Yuan has escaped thisfalling ,because of their high import rates. But as leading IT country and of its IT companies being responsible for foreign

exchange INDIA has shown a good comeback and has shown an appreciation of 2.3% in March 2013