Know the reason Why is Indian Rupee Falling Against Dollar – At the time of India’s independence, the value of one dollar was equal to one rupee, but in the year 2022 the value of Indian rupee has reached its lowest level and to buy one dollar one has to spend 79 rupees. This article explains the reasons for the fall in the value of the Indian rupee.
At present, the value of India’s currency “Rupee” is continuously declining and investors have to spend Rs 79.05 to buy one dollar now. In the BRICS group (Brazil, Russia, India, China and South Africa), the Indian Rupee is the only currency after Russia’s “Ruble”, whose value has declined the most.
Since the independence of India in the year 1947, the Indian Rupee has devalued 3 times. In 1947 the exchange rate between dollar and rupee was 1USD = 1INR, but today you have to spend 79.05 rupees to buy one US dollar.
When there is a decrease in the external value of the currency of a country while the internal value of the currency remains constant, then such a condition is called devaluation of the currency.
What is exchange rate: The meaning of exchange rate is the relative price of two different currencies, that is, “the value of one currency relative to another”. The market in which the currencies of different countries are exchanged is called the foreign exchange market.
After independence, India also followed IMF’s Par Value System. On 15 August 1947, the exchange rate between the Indian Rupee and the US Dollar was equal to each other (ie 1USD = 1INR).
But what has changed in the present time is that India’s currency is becoming weaker in comparison to other currencies including the US dollar. Let us know in this article the reasons for the recent fall in the value of India’s currency;
The following reasons are responsible for Indian Rupee Falling Against Dollar :
1. Rise in Crude Oil Prices
As we all know that India produces only 17% of its oil requirement and imports 83% of the balance and this is the reason that the largest share in India’s import bill is crude oil prices.
According to a report by consultancy firm Wood Mackenzie, India’s crude oil demand per day was double (1 barrel = 159 litres) in 2022 compared to 2020.
It is thus certain that as the demand for crude oil in India increases, the government’s import bill will increase, due to which the government will have to pay more in dollars to other countries including Iraq and Saudi Arabia; Due to which the demand for dollar will increase and the value of rupee will decrease in comparison to it.
The Economic Survey 2018 estimates that if the price of crude oil increases by $ 10 per barrel, then it reduces India’s GDP by 0.2-0.3 percent.
2. Trade War Between America and China
America has decided to increase the tax on imported products of many countries including China, India and European Union, in return these countries have also increased the tax on US products, due to which the imported prices of these products are bound to increase.
In such a situation, the prices of the goods imported by India will also increase, due to which India will have to spend more dollars in the form of payment. Due to this there will be an increase in the value of the dollar and a decrease in the value of the rupee. That is, to buy one dollar, more rupees will have to be spent.
3. India’s Growing Trade Deficit
When the export bill of a country decreases in comparison to its import bill, then this situation is called trade deficit. India’s trade deficit has increased to $ 156.8 billion in the financial year 2018 as compared to $105.72 billion in the previous financial year. This simply means that India has to spend more on imported goods and services than the income it is getting from exports in dollar or other foreign currency. That is, the dollar in India’s treasury/market is decreasing while demand is high, and according to the “law of demand”, “the price of a commodity which decreases in supply increases.”
4. Outflow of Capital from India
The exit of capital is said to be the condition when foreign investors from India or investors of the country withdraw their money and invest in some other country. It is to be known that when investors from India and abroad withdraw money from the market of India, they withdraw in currency that is accepted everywhere in the world i.e. dollar, due to which the demand for dollar in India increases as well as its value also increases. Is.
5. Hike in rate of Interest by Federal Reserve in USA
At the same time, America raised interest rates for the first time since the year 2018 to deal with rising inflation. US Federal Bank had increased interest rates by 0.25 in February 2022.
When the Fed raises its interest rate, dollar-denominated bonds at higher interest rates become a safe instrument for better returns for all foreign institutional investors. These funds include hedge funds, mutual funds, pension funds, insurance bonds, etc.
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FII has sold 2.25 lakh crores Since then, investors withdrawing money from Indian markets increased their speed. In 6 months of this year, Foreign Portfolio Investors (FPIs) have so far withdrawn more than 2.25 lakh crores from the Indian market, which is more than the selling done during the global economic crisis in 2008.