Why the Indian Rupee is falling against the dollar?

You must be reading it in the news. In fact, yesterday on 31st of August, Rupee fell below the 68.08 per dollar mark.

Let’s see why this fall is happening in a very simple manner.

1. India has to import oil
Simply speaking: We send dollars and we get oil. Oil prices are increasing and we are consuming more oil than before.

2. Gold is our weakness
We import too much gold from other countries. The more we import the more the pressure on our currency

3. Our Exports are not growing fast enough
We import more than we export and to make the matters worse our imports are growing faster than our exports - Trade Deficit.

4. Foreign Institutional Investors
FIIs are taking more money out of the Indian markets and putting in less money. There has been lot of policy issues in India and the investment climate is not friendly.

5. Low Growth and High Inflation
Our Economy is not growing fast enough and the costs are increasing.
Due to inflation, RBI cannot reduce the interest rates by a big margin. Thus, the growth cannot be made faster in a short time.

What can be done to stop Rupee's fall against Dollar?

What can be done to stop this slide? Here are a few things that the Government and the RBI can do:

1. RBI can ask exporters to convert their Dollars into Rupees. In other words, it can ask the exporters to buy Rupees.
2. RBI can talk to financial institutions and banks to raise money abroad in foreign currency and then lend it in India.
3. The Government can increase the limit on foreign investment in government and corporate debt.
4. The Government can do some reforms and allow FDI in sectors where it was limited earlier.
5. The Government can issue bonds abroad.

All these measures can provide some short term relief to the Rupee. It will hold its value in the short-term.
In the long term, there is no solution other than to make our economy stronger.
It will take time for us to boost our exports. Our industry is not very competitive globally. We need more investments.
Our economic growth is slowing down. A few years back we were looking at achieving 10% growth and now we are looking at how not to let it fall below 5%.

Let’s wait and see how the globe economy and our policies shape up the Dollar Rupee equation.


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