A Short Note on a Weak Indian Rupee:Advantages and disadvantages

There are various reasons why the Indian rupee falls. The Indian currency is called the rupee and the value of the rupee is affected by various factors like inflation rate, foreign exchange system, etc. The main reason for the weakness of the Indian rupee is the increasing trade deficit, lack of trust by foreign investors and contraction in the stock market. Thus, the value of the Indian rupee decreases. As a result, the prices of commodities in the Indian market increase. Inflation does not positively impact the country’s poor population as food becomes more costly. 

However, moderate inflation would mean that consumers are more likely to spread and participate in the economy. Furthermore, exports increase because the product is cheap. This can dampen inflation and strengthen Indian Rupee. India needs to increase its exports, support entrepreneurship and increase government spending.

What is the Indian Rupee?

The Indian rupee symbol is ₹. The code of the Indian rupee is INR; it is the authorised currency of the country. The rupee is subdivided into 100 paise; however, in 2019, coins of the denomination of 1 rupee were the shortest.  The Reserve Bank of India governs the department of print and issuance of the currency. The Reserve Bank organises money in India and plays a crucial role in currency management founded on the Reserve Bank of India Act, 1934.

Meaning of the Indian Rupee and its Weakness

The demand for the Indian rupee and other countries’ currency impacts the currency’s condition and determines the rupee’s value.

When the demand for the currency (rupee) increases, then the value of the rupee also increases, known as an appreciation of the rupee.

If a rupee demand falls, then the value of the rupee decreases. It is known as the depreciation of the rupee. There are positives of depreciation as well, and many industries cheer the depreciation.

Causes of a Weak Indian Rupee

1. Foreign exchange rate – The major issue in India is that the payment of imported goods is done in the form of dollars or other currency. The exchange rate of foreign currency is very high in our country.
2. Falling of rupee value – The value of Indian rupee is decreasing day by day. The main reason is the less inflation rate in our country. 
3. Trade deficit – One of the factors that influenced the Indian unit’s shortcoming was the record high trade debt. India is not functioning in a trading system. Most of the goods are exported instead of trading them in our country.
4. Stock market – In the stock market, numerous investors belong to a foreign country. They take the maximum number of shares of the Indian stock market. When foreign investors pull out of the market, the rupee gets weaker.

How to Overcome this Problem?

India needs to do intermittent improvements to overcome this problem. 

1. When most of the investors from other countries invest in India, the demand for the Indian rupee increases.
2.  When International consumers spend more currencies to purchase goods and services of our country, they need to convert their currency into the Indian rupee, thereby appreciating the demand for the Indian rupee.
3. The Indians who are doing payments for imported goods from dollars and other currencies must do payments from the same country’s currency, not using the Indian rupee.
4. India needs to increase its exports compared to imports. 

Advantages of Indian Rupee Weakness

1. Exports become less costly and more competitive with foreign consumers. Therefore, this increases their domestic demand.
2. Travel to India also gets less costly; local enterprises can benefit.
3. Those working in other countries can earn more by remitting money to their home country.
4. Eventually, it decreases the current account debt.

Disadvantages of Indian Rupee Weakness

1. Depreciation enhances inflationary pressures. When inflation increases, prices of goods and products escalate. Therefore, the purchasing ability of the rupee has decreased.
2. A depreciation of the domestic currency results in greater import costs for the country. 
3. Failure of a related increase in the prices of exportable products will occur in a way of the current account deficit (CAD) of the country.
4. Foreign Travel and Education become costly.
5. The interest responsibility would improve on foreign currency-denominated debt.
6. When foreign investors and customers spend their dollars to take advantage of our country’s goods and products, the value of the rupee increases.

Conclusion

The dollar is more powerful than the Indian rupee. Indian rupee value gets weaker due to various factors such as increasing trade deficit, lack of trust by foreign investors and contraction in the stock market. The rate of inflation is very high. The government should take care of this major problem and make relevant policies. 

The country should strengthen the export system so that the currency is valued when the payment is made in foreign currency dollars.

When foreign investors and customers spend their dollars to take advantage of our country’s goods and products, the appreciation of the rupee arises.