Describe The Trends' In Exchange Rate Of Rupee Vis A Vis The Major Currencies Over The Last One Year. How Has It Effected The Indian Economy?

1046 words - 5 pages

The exchange rate fluctuations in India has been a topic of apprehension for the policy makers and common public. The exchange rate system in India, known as managed float, has evolved through a long process of probing for an suitable policy system for India. in view of the fact that exchange rates are relative prices of two currencies it is generally exaggerated by the relative productivity differential and real wage rates in the long-run. However, the bubbles arising out of assumption plays a major role in influencing the exchange rates in the short-run. The present state of affairs about the exchange rate fluctuations in India has been caused to a large extent by the worsening current ...view middle of the document...

Grocery Bill: The prices of Fast Moving Commodity Goods(FMCG) have increased because certain FMCG products like detergents, deodorants, soaps, shampoos etc. use crude oil as an input have seen a ascend in prices. Other than that, roughly all FMCG goods have become expensive for the reason that the cost of distribution of these goods have gone up due to increased transportation prices.
Jobs and Salaries: Indian companies which depend on imports are facing the catastrophe. People working in these companies are facing the pinch by their shirking pay cheque. However, those Indian companies which are export oriented are reaping profits in this situation. Export oriented companies get paid in USD and are paying their employees in INR. As a result of weakening of the Indian Rupee, they are reaping huge profits and the salary of people working in such export-oriented companies are also benefiting from it.
GDP: The weakening of the Indian Rupee will increase the Current Account Deficit(CAD) of the country and an increase in the CAD is not desirable in the Indian economy because it will hamper the overall growth rate of the country.
Central Bank Policies: If the rupee continues to depreciate like this, the central bank will be bound to squeeze out money from the economy because inflation will curb in. If the RBI opts for policies which increased bank lending rates, investors will be less immersed in taking loans, thereby hampering production and the GDP of the country.
Automobile Sector: The automobile sector has been hit hard by the depreciating rupee. The cost of certain imported parts have increased which has resulted in the increase in the overall cost of the product and in certain cases, if the cost of the product has not been increased, companies have reduced the Value-Added Services which came with the product. Another reason of the automobile sector being hit hard is because the price of its complimentary goods, petrol and diesel has also increased which is abstaining buyers from buying automobiles.
Real-estate sector: Because of the rupee depreciating and increasing inflation, RBI is sucking...

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