Why Indian Rupee falling down?

     What is the reason for the steep slide of Indian Rupee? Why US Dollar gets stronger? A review.

     Prime minister Dr Manmohan Singh, when suddenly took over the charge of finance ministry 2 decades ago, his first reforming step was decreasing the value of Rupee.  It was his short-cut trick to make Indian products more attractive and competitive in foreign markets.  Besides, he set free the value of Rupee from the control of Reserve Bank of India (RBI) and allowed it to be volatile in the variations of share market. 

     There was too much of confidence at that time in Mr Singh and other experts of finance ministry.  Thus, Indian Rupee was thrown in to the center of choppy global money market through open economy and liberal policies.  Since then, the value of Rupee started declining and moving up and down.  In the beginning, the volatility was meager though, now it has become virtually a threat to the entire economy.  Two decades ago, when these reforms were in the beginning stage, India was a country that has only limited quantity of importing business.  But nowadays, as Indian economy formed larger and prominent one, the volatility of the value of Rupee has turned virtually a big crisis. 

   Last week, it was like the confidence of Prime Minister and Finance Minister, has drained away as the value of Rupee against US Dollar fell steep to the level beyond historical record.  It is also to be noted that the transaction rate of Dollar against Rupee was Rs 42 in 2009 and at present, the same has reached at Rs 59.  That means the value of Rupee has slid almost 45% in the span of 4 years.  While reviewing the present circumstances, the possibility seen is only to decrease the value further.  Perhaps the rate of Rupee may go further down to the level of Rs 60 per Dollar.  This steep plunge may be a happy-news to some industrialists as well as some exporters though, the trouble of which will be a burden for the common people as usual.  The after shocks of these developments are seemed to have begun when the petrol price hiked Rs. 2 per liter.

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     Import of the gold and oil is increasing day by day and which is the most prominent indicated reason for the drop in the value of Rupee.  But this factor can be considered only one side of the coin.  If we go further ahead with an expanded review, we could find more factors that are not under control of India government.  The value of Rupee is adversely impacted even by the uncontrolled subsidies given to the super industrialists.  If the authorities are reluctant in solving these issues, it will be more serious crises that are going to overwhelm the country. In a period of 7 days after last May 15, the value of Rupee against Dollar had fallen approximately 2%.  But India had earned a surplus amount of $240 Cr more than the amount of foreign currency spent in the same 7 days period.  Yet, what may be the reason for the steep plunge of Indian rupee?  It is obvious that the value of rupee has been thrown beyond the day to day accounts of market. It is also evidently clear that the Rupee is under pressure from various corners.  

     Dollar is getting stronger against all other currencies of the world. This is also another reason for the plight of Rupee.  The shadow of global recession is moved away and the situation in America, even in employment sector, is getting improved nowadays.  This is the secret behind the strength of Dollar.   In the meantime, the issues in Japan and Euro zone are still going on.  Therefore, Dollar, like gold, became the most secured investment method.  In the global money market, the investments in Euro and other currencies have been shifted to Dollar. This helped Dollar for getting stronger against all other currencies and which also adversely affected Rupee.

     European Union (EU) is the biggest partner of India in the foreign trading sector.  India, more than any other countries, has been depending EU for the investments.  Therefore, it is quiet natural that the recession and crisis connected with EU will adversely impact India.  It will also help to remain the export sector weak while the import sector booming day by day.  It leads to the huge raise in foreign trade deficit (the difference between export and import).

Why Indian Rupee falling down? Part 2