“If you are feeling low in life, take a look at rupee”, read somewhere today. Someone tweeted “Things that are going towards their all-time low:- 1) Australian Cricket team 2) Potholes in India 3)Rupee. Continuing its intermittent fall against the US dollar, the Indian rupee dived to another all-time low of 73.64. What do we mean when we say that the value of Indian rupee has fallen or depreciated against US dollar? Well, it simply means now one dollar can be exchanged for more rupees than before. Let us analyze the following data:- (Value of dollar one in INR)
26 May 2015- 58.66
26 May 2016- 66.93
26 May 2017 – 67.72
30 Aug 2018- 70.82
06 Sept 2018- 71.96
04 Oct 2018- 73.6
There is a clear upward trend in dollar value, the question arises why? The most significant reason for this is the dependency on oil import. India imports more than 80% of its crude oil requirements. If the crude oil prices increase, our total import cost will also increase, affecting our current account balance, which in turn affects the currency market. Another reason is the huge current account deficit (of India), an increasing account deficit leads to an increase in demand for the dollar. Few other reasons are US Federal Funds’ rate changes (rate hikes). Also, the trade war among developing countries leads to instability in rupee value.
The fall in rupee value affects the Indian economy adversely. The lesser the value of Indian rupee, lesser the chances of India to flourish economically. The government has taken many direct and indirect steps to eliminate this problem but all in vain. The tax amnesty scheme was the carrot and a window to judge compliance. The tax raids were the stick to raise the burden of non-compliance. The demonetisation announcement was a larger stick along the same lines.
Before concluding, HERE is a paradox. India churns out lots of brainboxes, including clever economists who thrive at home and abroad. Almost anywhere in the world, you can drop into a bookshop, an international development institution, a university or a prospering company and likely as not be confronted by bright Indians offering sharp analyses of how best to fight poverty, create wealth and promote innovation. Yet the performance of the Indian economy itself, over the decades, fell well behind (most of) the rest of Asia, let alone the world. If this continues no sooner the Indian economy will collapse. Hope rupee gets out of this low phase and gets high on life.