Why Indian Rupee went for Free Fall against US Dollar

  •   Thu, May 25 2023
  •   By Girish Linganna

May 25, 2023

THE INDIAN RUPEE HAS BEEN DEVALUED against the US dollar in recent years, even though the country has experienced considerable economic development under the leadership of Prime Minister Narendra Modi.

The Indian rupee depreciated over 11% in 2022 against the dollar—it’s poorest-ever performance since 2013—as the US Federal Reserve’s aggressive monetary policy propelled the greenback. The rupee closed 2022 at 82.61 to the US dollar, down from 74.29 at end-2021, as the US currency headed for its biggest yearly gain since 2015.

The forex market volatility was prompted by a rally in global oil prices following Russia’s war in Ukraine. This led to the Reserve Bank of India frequently dipping into its reserves as imported inflation became a challenge for policymakers.

Several factors contributed to this trend:

  • The global economic slowdown: The global economy has been growing at a slower pace in recent years, which has put a downward pressure on the value of currencies worldwide.
  • A gradually rising trade deficit: India has a huge trade deficit, which means it imports more goods and services than it exports. This puts downward pressure on the value of the rupee, as it makes it more expensive for Indians to buy foreign goods and services leading to higher inflation. It has also made it more difficult for Indian companies to compete with foreign companies in international markets.
  • An outflow of foreign investment: There has been a significant outflow of foreign investment from India in recent years. This is due to several factors—including concerns about the country’s economic growth prospects and the political climate.
  • The weak domestic economy: The Indian economy has been growing at a slower pace in recent years, which has led to concerns about its long-term sustainability. This has also put downward pressure on the value of the rupee.

The Modi government has taken several steps to try to stabilize the rupee, including increasing foreign exchange reserves and imposing restrictions on capital outflows. However, these measures have had limited success. The devaluation of the rupee is likely to be a major challenge for the Indian economy in the years to come.

The devaluation of the rupee has had a number of negative consequences for the Indian economy. In addition to the factors mentioned above, there are many others that could contribute to the devaluation of the rupee in the future. These include:

  • A rise in the prices of oil: India is a major importer of oil and a rise in oil prices would increase the country’s import bill and put downward pressure on the value of the rupee.
  • Economic growth slowdown: A slowdown in economic growth would lead to a decline in demand for Indian goods and services, which would also put downward pressure on the value of the rupee.
  • Political instability: Political instability could lead to capital outflows and a decline in investor confidence, which would also put downward pressure on the value of the rupee.

The devaluation of the rupee is a complex issue with many contributing factors. It is important to understand these factors in order to develop effective policies to address the problem.

BLACK MONEY, HAWALA MONEY

Black money and hawala money have further devalued the Indian rupee. Black money is unaccounted for income that is illegally earned and hidden from the government. Hawala money is a system of transferring money without using banks or other financial institutions. Both black money and hawala money are used to evade taxes and regulations and can have a negative impact on the economy.

Black money and hawala money can devalue the rupee in several ways. First, they can lead to inflation. When there is more money in circulation, the value of each rupee decreases. Second, black money and hawala money can make it difficult for the government to track the flow of money, which can make it more difficult to manage the economy. Third, black money and hawala money can be used to fund terrorism and other criminal activities.

The government has taken some steps to address the problem of black money and hawala money. In the 2016 demonetization drive, high-value currency notes were withdrawn from circulation. The government has also cracked down on hawala operators, making it more difficult to launder money. However, the problem of black money and hawala money remains a major challenge to the Indian economy.

Some negative effects of black money and hawala money on the economy:

  • Reduced tax revenue: Black money is unaccounted for income, so the government does not collect taxes on it. This reduces the government’s revenue, which can lead to cuts in public spending.
  • Increased inflation: When there is more money in circulation, the value of each rupee decreases. This can lead to inflation, which makes it more expensive for people to buy goods and services.
  • Reduced investment: Black money can be used to fund investments in assets that are not productive, such as real estate and gold. This can reduce investment in productive sectors of the economy, such as manufacturing and agriculture.
  • Increased inequality: Black money can be used to accumulate wealth, which can lead to increased inequality. This can have a negative impact on social and economic development.
  • Funding of terrorism: Black money can be used to fund terrorism and other criminal activities. This can pose a threat to national security.

The government needs to take more steps to address the problem of black money and hawala money. It must strengthen enforcement of its laws on black money and hawala money, and make it more difficult for people to hide their income. The government also needs to promote transparency and accountability in the economy.

 

 

 
By Girish Linganna
Girish Linganna is a defence, aerospace and political analyst.
To submit your article / poem / short story to Daijiworld, please email it to news@daijiworld.com mentioning 'Article/poem submission for daijiworld' in the subject line. Please note the following:

  • The article / poem / short story should be original and previously unpublished in other websites except in the personal blog of the author. We will cross-check the originality of the article, and if found to be copied from another source in whole or in parts without appropriate acknowledgment, the submission will be rejected.
  • The author of the poem / article / short story should include a brief self-introduction limited to 500 characters and his/her recent picture (optional). Pictures relevant to the article may also be sent (optional), provided they are not bound by copyright. Travelogues should be sent along with relevant pictures not sourced from the Internet. Travelogues without relevant pictures will be rejected.
  • In case of a short story / article, the write-up should be at least one-and-a-half pages in word document in Times New Roman font 12 (or, about 700-800 words). Contributors are requested to keep their write-ups limited to a maximum of four pages. Longer write-ups may be sent in parts to publish in installments. Each installment should be sent within a week of the previous installment. A single poem sent for publication should be at least 3/4th of a page in length. Multiple short poems may be submitted for single publication.
  • All submissions should be in Microsoft Word format or text file. Pictures should not be larger than 1000 pixels in width, and of good resolution. Pictures should be attached separately in the mail and may be numbered if the author wants them to be placed in order.
  • Submission of the article / poem / short story does not automatically entail that it would be published. Daijiworld editors will examine each submission and decide on its acceptance/rejection purely based on merit.
  • Daijiworld reserves the right to edit the submission if necessary for grammar and spelling, without compromising on the author's tone and message.
  • Daijiworld reserves the right to reject submissions without prior notice. Mails/calls on the status of the submission will not be entertained. Contributors are requested to be patient.
  • The article / poem / short story should not be targeted directly or indirectly at any individual/group/community. Daijiworld will not assume responsibility for factual errors in the submission.
  • Once accepted, the article / poem / short story will be published as and when we have space. Publication may take up to four weeks from the date of submission of the write-up, depending on the number of submissions we receive. No author will be published twice in succession or twice within a fortnight.
  • Time-bound articles (example, on Mother's Day) should be sent at least a week in advance. Please specify the occasion as well as the date on which you would like it published while sending the write-up.

Comment on this article

  • Rohan, Mangalore

    Sun, May 28 2023

    In my opinion the rupee is not largely and heavily traded like euro dollar trade. The volume of trade is very low which is leading to unsettled rates

  • Stany Jovin Menezes, Muscat

    Sat, May 27 2023

    If a a country imports more goods and services than it exports or experiences a large outflow of capital, it can cause its currency to lose value. If India's imports are higher than its exports or if there's a significant amount of money leaving the country, it can lead to the Indian rupee becoming weaker compared to the US dollar.

  • Alwyn Johnson Quadors, Shirva/Dubai

    Fri, May 26 2023

    Thank you for the article . Very informative and useful.

  • Gautam Das, Bangalore

    Thu, May 25 2023

    It’s clearly what the govt is saying and what is reality we see on the ground is day and night different. An emerging and promising economy like India should have been more robust and reliable to withstand global down turn effects. But if the leadership is only focussed on self growth and not of the country then the reality is no surprise.


Leave a Comment

Title: Why Indian Rupee went for Free Fall against US Dollar



You have 2000 characters left.

Disclaimer:

Please write your correct name and email address. Kindly do not post any personal, abusive, defamatory, infringing, obscene, indecent, discriminatory or unlawful or similar comments. Daijiworld.com will not be responsible for any defamatory message posted under this article.

Please note that sending false messages to insult, defame, intimidate, mislead or deceive people or to intentionally cause public disorder is punishable under law. It is obligatory on Daijiworld to provide the IP address and other details of senders of such comments, to the authority concerned upon request.

Hence, sending offensive comments using daijiworld will be purely at your own risk, and in no way will Daijiworld.com be held responsible.