![]() When they take this money out of India, they largely convert it into dollars, leading to an increase in the demand for the dollar and the rupee losing value. Between October 2021 and 18 July, FIIs sold stocks worth Rs 2.65 trillion. One oft-offered reason for the rupee falling is that foreign institutional investors (FIIs) have been pulling out of Indian stocks. As things currently are, the demand for dollars is higher than the rupee. And like any other price, it is impacted by demand and supply. The price at which we buy dollars with rupees and vice versa. ![]() The dollar-rupee exchange rate is ultimately a price. Stronger against currencies of weaker nations. In fact, as India progresses, the rupee will automatically That is mainly possible with a weaker currency, not a stronger one. If India needs to grow its stagnant exports, it must compete on price. Hence, obsessing with a strong currency for a less-developed nation like India is a bad idea. Up until 1913, one British pound was worth 4.87 dollars. The countries in South East Asia, South Korea, Japan, Taiwan and China are all great examples of this strategy. There have been occasions when this was largely true, but that’s not the case this time.Īlso, it is worth remembering that any country that has followed an export-led growth strategy has also pursued a weak currency strategy. Of course, this is not to say that a weak rupee never reflects a weak economy. However, these issues have a tenuous link to the value of the rupee against the dollar. Also, the post-covid economic recovery is turning out to be K-shaped, with the well-to-do section of the economy doing Nonetheless, the state of the economy currently is much better than it wasĪt the same time, the larger problems of a low labour participation rate and insufficient jobs for India’s youth continue to prevail. Imports are a negative input into the gross domestic product (GDP) calculation. Hence, a higher oil price, along with a weaker rupee, is actually a double whammy.Ī weaker rupee does hurt the Indian economy by pushing up what we pay for imports in rupee terms. Nonetheless, it was still 44% higher than the average price of the Indian basket of crude oil in July In June, the price of the Indian basket of crude oil averaged $116 per barrel, around 61% higher than the year earlier. While the rupee has lost value against the dollar, the international price of crude oil has also gone up. Also, the imported inputs going into exports become more expensive, impacting margins. Their customers might want to renegotiate contracts because they know the rupee has depreciatedĪgainst the dollar. However, the same may not be true for smaller exporters. When it comes to exports, large IT companies benefit because of a weaker rupee. The government spends less money elsewhere. This will eventually push up government expenditure unless With a weaker rupee, the fertilizer subsidy goes up-something that is happening this year. The government subsidizes the fertilizer sold to the farmers. The price of oil has also risen in dollar terms. Of course, not all of this rise isĭue to a weaker rupee. Diesel prices are up 9.3% during the same period. This pushes up what we pay for crude oil and, in turn, the price of petrol, diesel and domestic cooking gas, feeding into retail inflation, despite the central government and many state governments reducing the taxes on petrol and diesel sold.Īccording to the consumer price index, which measures retail inflation, the price of petrol between April and June this year has risen by more than 14% from last year. When the rupee loses value against the dollar, more rupees are needed to buy dollars to pay for oil. ![]() Oil is bought and sold internationally in dollars. In 2021-22, India imported 85.6% of the oil that it consumed. The rupee’s value against otherĬurrencies matters to tourists and students going to those countries to holiday or to study.Īt a simplistic level, this is true. Hence, the rupee’s value against the dollar is of practical interest, which is why it is followed like it is. The dollar is at the heart of the global trading and financial system. About 86% of India’s exports and imports are But what is important to understand here is that a bulk of India’s foreign trade is carried out in dollars. So, yes, the rupee has gained value against other currencies and lost value against the dollar. ![]()
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