RUPEE DEPRECIATION

RUPEE DEPRECIATION:

INTRODUCTION:

If the exchange rate of the Indian rupee to the other currencies especially Dollar decreases, then it can be called a “DEPRECIATION OF AN INDIAN RUPEE.”

Example:

If you want to get 100 dollars from a bank and it demands Rs.4510, then the value of 1 dollar is equal to Rs.45.10. But after 3 months if you go to the same bank for the same 100 dollars, the amount demanded will not be the same. It may increase or decrease. If the amount demanded increases, then it is said that we are demanded to pay more for the same 100 dollars. That means the rupee value has got depreciated.

WHY IS THE VALUE OF RUPEE DECLINING?

·       HIKE IN BALANCE OF PAYMENT:

Balance of Payment includes capital account and current account.

CURRENT ACCOUNT:

 It includes both deficit and surplus.

CURRENT ACCOUNT SURPLUS:

If the exports lead imports then to achieve a balance, the currency should appreciate. So the surplus current account tends for the appreciation in the value of rupee.

CURRENT ACCOUNT DEFICIT:

If the imports lead exports then to achieve a balance, the currency should depreciate. So the deficit current account tends for the depreciation in the value of rupee.

CAPITAL ACCOUNT:

It includes the principle amount or the inflows into the country in the form of FII, FDI, investments on assets and borrowings in the form of loans taken and external commercial borrowings (ECB’s). But in the recent scenario, the investors, who feel insecure of investing in rupee, started taking back their investments leading to selling of the rupee and buying of the dollars, decreasing the demand for the rupee. This led to the depreciation of Indian rupee. So, the capital account deficit leads to the rupee depreciation.

·       EURO ZONE CRISIS (RECESSION):

India is experiencing the pinch of Euro zone recession due to it being one of the India’s major trading partners. This led to the fall of the Indian exports. This led to the fall in euro and increase in the demand for dollar, a safe haven. The increase in the demand for dollar led to an avid buying of them, thus resulting in the fall in the value of rupee. So the uncertainty in Europe is another cause for the rupee depreciation.

SOLUTIONS TO CONTROL RUPEE DECLINE:

·       The first step is to increase the exports to make a balance with the imports and reduce BOP.

·       The RBI should take the initiative to use the Forex reserves that is it should sell dollar and buy rupee creating a demand for rupee.

·       Indian companies borrowing from abroad should invest a part of it in India.

·       RBI should raise the policy rates in order to decrease the inflation.

MY PERSPECTIVE:

There are many factors that led to the downfall of the rupee. We every time cannot blame the other countries for our rupee decline and our economic problems. There are many drawbacks with our country’s leaders. I feel that the politics are playing a major role in this game. So I think the necessary initiatives should be taken by the government without expecting any profit to make the rupee value appreciate which would be considered a best sign for the import oriented countries like India.