Last month witnessed a dramatic hip-hop of the rupee against the dollar giving rise to the debates all over. TT brings you some interesting things you'd want to know about this depreciation which went on to become biggest monthly decline since 1991.
Reasons for the free fall of rupee
Though PM made a statement in the Parliament that the depreciation was partly led by global factors as well domestic factors, following are some of the
reasons for the plunging fate of the rupee.
High Current Account Deficit (CAD)
CAD occurs when the total import of goods and services of a country is greater than the total export goods and services. Indian government’s failure to explore new destinations has directed to poor growth of exports. In the absence of a single window clearance system and process delays, exports have failed to register good growth. Even traditional export areas have failed to show resilience making Indian products globally less competitive.
Insufficient Foreign Direct Investment
The US federation has withdrawn
some of its bond buying programmes resulting in a sudden outflow of money that in return has left India far behind in the race. Foreign investors have been pulling out of the Indian economy. Past months have seen a record outflow of foreign investments of Rs. 44162 crore. With the giants like Posco
pulling out of its Rs. 30000 crore steel plant project in Karnataka followed by ArcelorMittal pulling out of its Rs. 50,000 crore
project in Odisha due to delays and land acquisition delays, the total inflow of capital in India
has shrunk. Indian investors
have been spending more abroad than foreign investors have been spending in India.
Rising Import Bill
Oil accounts for 35% of the total imports and gold 11% on India’s current bill. In the gulf countries, the dealing of oil is done in dollars. If India has to purchase oil, it has to pay in dollars. So for this India needs to purchase dollars from USA in exchange of gold. This has led to the further devaluation of the rupee. Also, the sliding prices of gold
have triggered the government
to lower the imports of gold.
rupee, dollar
aur
rockstar!
6 SEPTEMBER, 2013
FROM
THE
EDITORS