The Fall & Fall of Indian Rupee in Layman’s Language

The India’s shining economy has suddenly lost its glitter. The Indian rupee has reached its lowest in the history. The expatriates are desperately taking loans and sending that money to India. The whole world is looking at India’s next move.

India Now Vs US before recession

But the worsening of India’s economy did not happen overnight. This makes me compare the India’s current state of affairs with that of US before the recession.

 

No US before recession India’s current situation
1 US had become a consumer economy with bulk importing from abroad. India is a consumer economy now with imports reaching at a higher level.
2 US had borrowed huge sum from abroad and used it to invest in subprime mortgage. Industrialists in India had borrowed cheap loans from foreign institutions to take advantage of low interest rate abroad.
3 The real estate market was showing a sharp growth. India’s real estate price has reached exorbitant level.

   

The Indian scenario is not all that worse like that of US because of the strict and conservative policy of the central bank. The economy still has the spark and potential to bounce back because of the better fundamentals in the due course.

Reasons for the downfall of Rupee

The shift to consumerist economy:  With the increase in cost the manufacturing in India, the companies started gradually relying on other countries for manufacturing like China. The rise in cost and lack of production is the primary problem being faced with India’s economist.

The Oil Import: The excessive reliance on the oil import has been draining India’s foreign reserves. With more and more vehicles on the road and increase on the price of crude oil India’s reserves are slowly moving out of the country.

The Interest Rate Variation: With the availability of cheap credit from foreign market the Indians borrowed from foreign countries to invest in India at a higher rate is also one majore reason for India’s current plight.

Squaring up the position: With month end approaching, the importers are buying the dollar to square and close their hedging position in foreign exchange market. With more demand for dollar the price of dollar increases even further.

 

Close Approaching Elections: With election dates approaching and the lack of finding an alternative government to replace the current leadership investors are thinking twice before investing.

Lack of Sustainable Development Initiatives: The development initiatives of the changing governments at both the centre and the state have not been on focusing on the sustainable developments. In order for the politicians to stick on to power the frequent freebies by the governments are also taking a pinch on the country’s economy now.

 

The current economic problems can be solved with better initiatives from the government and the central bank. The customs duty hike is part of such initiatives. If the leadership of the nation does not recognize the importance of sustainable development things can go from bad to worse. 

 

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