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Ripple effects of the rupee falling against the dollar

By Zoheb Bedi

The fall in the value of the Indian rupee continues as the USD (dollar) is now worth over seventy rupees. The value of the rupee has steadily been decreasing since the start of this year. This decline can be attributed to the growing demand of the USD, which is needed for international trade.

Ripple effects of the rupee falling against the dollar

The first and foremost problem, and perhaps the most obvious one, is that it is more expensive to buy the dollar. In other words, importing items will become immediately expensive. As a result, prices of imported items within the country will rise significantly.

Oil is the first such commodity which comes to mind. With an increase in the price of the dollar, there will result an increase in the price of oil. To correct that increase, the prices of oil within the country will be higher. However, there is some silver lining. Costly imports may motivate customers to turn to domestically produced


This may not be the case for goods with inelastic demands, such as oil, but it can work for goods with replacements such as branded clothes, foods, machines, etc. People may, for example, turn to Indian brands of coffee instead of American ones. A shift from

goods produced outside the country to those produced within is, needless to say, good for the manufacturing sector of India. An improved manufacturing sector may even attract foreign clients which in turn brings more dollars into the Indian economy.

The major advantage of a falling rupee value is the increase in demand for exports from India. Since the dollar can buy more rupees now, the dollar can buy more products now. Investors and importers abroad are able to get more goods for the same amount of investment.

For this reason, they are willing to spend more money on Indian goods. Higher demand for domestic goods is a boost to the economy as it is providing employment and brining in more money into the India economy. In fact many scholars have credited such a decline (forceful in that case) in the value of its national currency, which enabled China to influence international trade and become an economic super-giant.


China from time to time devalued its own currency on purpose, a method called dirty floating, in order to increase the demand for its domestic goods in the international market. Due to an upsurge in demand, China was able to get a lot of foreign currency which it saved to build up a strong foreign reserve. It earned dollars while making sure it did not spend any. With an increased foreign reserve, it was able to make a name for itself and become a leader in the global market. With right investments and a determined government.

It is tough to see the benefits of a falling rupee value, especially since all we hear about is rising prices. However, as mentioned earlier, there may just be an opportunity for India to capitalise upon

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