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The Indian Economy is suddenly faced with numerous issues, among them a sharp devaluation of the national currency, the rupee. Tell us what you need to have done now!
There was a sharp decline in the value thereafter and the rupee entered the nervous nineties at 32 to the USD. The early nineties saw further decline and the rupee entered the 40s while weathering the foreign exchange crisis of This was the time when the euro came into existence and the value of the rupee also responded to the Euro-USD cross rates.
Why is foreign currency a player? The value of a currency is affected by many things. A currency can be viewed as a commodity whose price exchange rate is fixed by the demand and supply of that currency.
Demand for foreign currency arises due to trade and due to capital outflows. Importers in India need dollars. Companies in India investing abroad need dollars. Foreign investments in India need to be serviced via dividend payments. Foreigners employed in India and repatriating their earnings need dollars.
All this creates a demand for foreign currency. Supply of foreign currency comes from exports, foreign capital inflows, repatriation by Indians employed overseas and dividends received by Indian companies investing abroad. The trade balance — difference between exports and imports — has always been negative for India, creating a huge demand for foreign currency over supply.
This was made up by capital inflows and borrowings. Thus in the Indian context capital flows of foreign exchange into the country is a very important factor in setting the value of the currency.
Capital inflow has two components: FDI is investment made by foreign companies to create specific productive assets.
These typically create a more stable availability of foreign exchange. FII is primarily money flowing into the capital markets investment in stocks etc. This can come in and go out quickly and thus represents a relatively temporary source of foreign exchange.
The current devaluation is attributed officially to excess demand for dollars. This, however, does not explain what is actually happening.
The ever persistent excess of imports over exports calls for a continuous inflow of foreign capital. Even if the capital does not go out as FII sometimes doeseven if it stops coming in, India could face a decline in the value of the rupee. The Reserve Bank of India normally uses this to ensure there is no undue turbulence in the value of the rupee.
It should also be noted that inflation in a country affects the value of the currency. India went through a period of high inflation without any appreciable fall in the value of the rupee. Hence the current phase could be seen as a late correction in the relative value of currencies.
The rupee has lost value with respect to almost all currencies. As a case in point, the rupee and the Thai baht were almost on par at the beginning of this century. Now the baht is almost twice the value of the rupee.
While reasons for the decline are many and difficult to assess precisely, the effects of the decline are foreseeable. Imports will become costlier and hence domestic producers will have a better run. Exports will become cheaper — this will make domestic producers more competitive in the global market.
Exporters of services, whose costs are in Indian rupees, will benefit by a combination of increased margins and greater competitiveness. Indians living abroad will find Indian assets more attractive, particularly real estate investment. Foreign debt — if it is denominated in rupees — will become cheaper as repayment will be made in cheaper rupees.
The government will find it easier to repay public borrowings. If the devaluation is followed by a cycle of high inflation, all debt will become cheaper.
Increased cost of imported products will affect those consuming them.But the Indian currency was under far worse pressure in and when the government devalued the rupee and the economy went through contrasting experiences.
‘Devaluation’ means that a country’s currency has reduced in value in comparison to other currencies i.e. official lowering of nation’s currency. This post is a compilation of our most viewed notes on Economics, which we think our readers should not miss.
Readers can download the each of the notes as PDF for free using the ‘print-pdf’ option. is and in to a was not you i of it the be he his but for are this that by on at they with which she or from had we will have an what been one if would who has her.
As a follow-up to Tuesday’s post about the majority-minority public schools in Oslo, the following brief account reports the latest statistics on the cultural enrichment of schools in Austria. Vienna is the most fully enriched location, and seems to be in roughly the same situation as Oslo.
Many thanks to Hermes for the translation from caninariojana.com As a follow-up to Tuesday’s post about the majority-minority public schools in Oslo, the following brief account reports the latest statistics on the cultural enrichment of schools in Austria.
Vienna is the most fully enriched location, and seems to be in roughly the same situation as Oslo. Many thanks to Hermes for the translation from caninariojana.com Pather Panchali (Bengali: পথের পাঁচালী [pɔtʰer pãtʃali], "Song of the Little Road") is a Indian Bengali-language drama film written and directed by Satyajit Ray and produced by the Government of West caninariojana.com is based on Bibhutibhushan Bandyopadhyay's Bengali novel of the same name and is Ray's directorial debut.
It features Subir Banerjee, Kanu Banerjee.