The Indian Rupee that started at Rs 64 for $1 on the first day of 2018 is now down to its newest low at Rs 72 for $1. The falling rupee has been a matter of debate, discussion and more importantly a sign of huge worry for the economy. Simple question remains – what will the government do to keep the crisis in check?
Booming United States Economy
Minister of Finance, Mr. Jaitley, has rightly asserted that prime reason for rupee fall is the booming US economy. The global factor at play has certainly caused a negative impact, not only on India but many other countries. In comparison with other economies, Indian rupee has done well. The major reason for the fall of rupee can be explained with the growth of US economy that has risen multifold in the recent past. The US Federal Reserve has increased the interest rates while the US president Mr. Donald Trump has decreased the corporate tax, making US a more attractive market. Dollar has been stronger than Euro and Pound and also other currencies as well. India can’t be blamed for this alone.
Countries like Turkey and South Africa has seen higher rates of devaluation in their currency as compared to India.
Fall of Rupee, a Huge Sign of Worry for India
Most of the international business is dealt in US dollars, making a weak rupee create untoward impact on the economy. India mostly spends money on oil imports, whose transactions are done majorly in US dollars. At present, India has to spend a lot of money on these imports. Devaluation of rupee makes imports much more expensive, making a straight hit on the Indian market. This leads to rise in inflation and the same will slow down the import. One cannot expect much when it comes to the exports since the devaluation of currency can also be seen in other countries.
Direct Jolt domestic economy
Devaluation of rupee will have a rather direct jolt on the domestic economy. Indian forex reserves are enough to survive the rupee fall and yet cannot escape few of the mishaps. The costly import of crude oil is a very common example where there will be a significant surge in the oil prices. In Mumbai, the petrol price per litre has touched Rs 90 mark for the first time ever. Diesel, which once was around Rs 40 has now touched the 70 plus mark. Costly fuel will have adverse consequences on the economy. Diesel is mostly used in transport vehicles to carry goods and also in farm sector and industries. Expensive diesel will increase inflation impacting the pockets of people directly.
The Indian Government, RBI and the State Governments must take concrete steps to tackle this menace. Least that can be done is to reduce the excise duty levied on oil which was merely to gather more revenue. Borrowing money from the NRIs through NRI bond is one such idea that has worked in the year 2013. It can work now as well if the government considers adopting attractive interest rates.