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Impact of Rupee Depreciation On Indian Economy
There are many ways to get the impact of Rupee Depreciation on the Indian Economy. The Indian rupee hit a historic low of 68.75 against the US dollar due to sluggish local stocks. This worsened macroeconomic issues like corporate earnings, slow economic growth, and market volatility.
Predictions suggest the rupee may slide further to 70 against the dollar within a month. The RBI implemented strict measures to combat the outflow of foreign currency.
The rupee’s future remains uncertain, leaving many wondering if it will stabilize or continue to decline.
The rupee has weakened which means we need to spend more rupees to get that dollar. This topic “Impact of rupee depreciation on Indian economy” is the most important & latest topic for group discussion.
Reasons for the Indian rupee’s depreciation against the Dollar:-
- Because of growing economic momentum Dollar strength is also increasing. Thio Chin Loo,
senior currency strategist at BNP Paribas told NDTV that the Dollar showed up boost in its value on the back of US rising yields. - Indian Economy getting exposed to the risk of sudden stop and reversal of capital flows due to the widening of the trade deficit. For example, if the U.S.The Fed’s withdrawal of its bond-buying program may trigger a sudden outflow of money, leaving India in need of dollars.India’s economic slowdown has made the situation more volatile. The government has struggled to attract significant foreign investment, exacerbating the issue.
India’s current account deficit is equivalent to 6.7 percent of GDP in December.
- Due to weakness in domestic equities, foreign institutional investors sold index futures which affected the rupee.
- Increase in import bills as oil accounts for 35% and gold accounts for 11% of India’s trade bill. According to traders, there is a continuous demand for the greenback from oil importers which in turn pushes the rupee lower. In a similar manner fall in the price of gold has offset the government’s and bank’s move to reduce import of gold, which in turn increases the current account deficit.
- Weak economic fundamentals & no signs of a quick solution are creating pressure on the rupee. The UPA govt has to deliver far-reaching reforms in order to generate heavy capital inflows as per expert suggestions.
Impact of rupee depreciation on Indian Economy:-
- Importers will be affected the most as they will have to pay more rupees for importing products. On the contrary, exporters will be delighted as goods exported abroad will fetch dollars which be converted to more rupees. Also, a weak rupee will make Indian produce more competitive in global markets and that will be fruitful for India’s exports.
- The cost of imported goods will become higher. For example, if you bought a product valued at USD 1, that means you paid around Rs 58 for that around a month ago but now you will get that same product for Rs 68
- Oil marketing companies will also feel the pressure of a weak rupee which in turn will be passed
Impact of Rupee Depreciation
on to the consumers as the companies are allowed to do so following the deregulation of petrol and partial deregulation of diesel.
Effect of Depreciation On Rupee
- If this depreciation in the rupee continues, RBI will have very little room to cut policy rates which in turn will add to the borrowers’ woes who are waiting to get rid of the high loan regime.
- Students who are studying abroad have to bear the burnt of depreciating rupee. Expenses towards the university/college fee as well as that of living will increase, thereby spelling a huge burden on the students.
- Indian rupee depreciation will also affect tourism. In case you are planning to spend your holiday abroad it will affect you as your travel charges as well as hotel charges will increase drastically, excluding shopping and other miscellaneous spending activity.
- The depreciation of the rupee is definitely good news for overseas Indians as those who are working abroad will gain more from remitting money to their homeland.
Impact on the Economy and Consumer
- The country’s fiscal health will be affected as a frail rupee will add fuel to the rising import bill of the country thereby increasing its current account deficit (CAD). A widening CAD will definitely pose a threat to the growth of the overall economy.
- Car companies are already revising their prices as they are dependent on several things like imported raw materials, borrowings in foreign currency, paying royalties to their parent firms, and having loans. Consumers of imported paperbacks and gizmos should be ready to pay more. Marketing companies will absorb the increase in cost but there might be cases when the consumer may have to bear the brunt.
- There will be a shrinking of pay packages. Industries that depend on imported raw materials will cut costs in two ways either by reducing salaries or human resources. This won’t affect those who are paid in dollars.
In my opinion, this particular scenario would bring a disruptive correction in India’s growth, with all components of growth which includes investment, exports, consumption, and government spending, suffering.
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Impact of Rupee Depreciation On Indian Economy
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Roshni Mishra
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