DEPRECIATING OF INDIAN RUPEE

Nowadays, the main concern for the Indian economy is the depreciation of the Indian rupee. It is very astonishing to know that, at the time of Indian independence rupee was at par with dollar. And currently 1 dollar is equal to Rs 63.47.

HISTORY OF RUPEE:

With the introduction of the 5 years plan and the subsequent requirements for foreign investments, the dollar slowly rose. In 1985, the dollar was equal to Rs 12.35 and since the economic liberalization in 1991, there was a sharp depreciation of rupee and the rupee had dropped to Rs.24.5 against a Dollar. Last year rupee hit an all time low of Rs. 65.42 against a dollar on the 22nd of August 2013.

REASONS FOR THE DEPRECIATION OF RUPEE:

v     CURRENT ACCOUNT DEFICIT (CAD):

Current account balance measures the trade of goods and services between the home country and the rest of the world. Current account deficit happens when imports of a country are more than its exports. India’s current account averaged a deficit worth 1.5 billion USD since 1947 until 2013. In the first quarter of 2013 the CAD was 18.1 billion and at present it has gone up over 20 billion. This has hit hard on the rupee. Oil accounts for 35% of the total imports and gold 11% on India’s current bill. There has been a heavy demand from the exporters of oil, the most prolific buyers of dollar in the world market, thus pushing rupee lower. In the gulf countries, the dealing of oil is done in dollars, i.e, if India has to purchase oil, it has to pay in dollars, so for this India needs purchase dollars from USA in exchange of gold. This has led to the further devaluation of the rupee.

v    The strengthening of the US economy, leading to surge in dollar is also a reason behind the depreciation.

v    The insufficient inflow of foreign direct investment and outflow of foreign investment has lead to the ruination of the Indian economy. It has lead to depletion of the Indian foreign reserves. The month of May has seen a record outflow of foreign investments of Rs. 44162 crore.

v    The fall in the GROSS DOMESTIC PRODUCT (GDP) has posed a constraint for the foreign investors to invest in India, hence slowing its growth.

v    The decision by the Reserve Bank and the government to impose temporary restrictions on capital flows has not gone down well with the markets, as it will not only discourage Indian companies from investing abroad, but also foreign firms from pumping money into India.

So these were some foremost reasons for the depreciation of Indian rupee leading to the deterioration of the Indian economy.

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