Ripple effects of the rupee falling against the dollar

By Zoheb Bedi
Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    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
     goods.

    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

    Read more about: rupee
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more