A brief note on reading current affairs topic- Indian rupee

The currency of India is referred to as the Indian rupee. It is represented as code INR by ISO, and its distribution is regulated by the Reserve Bank of India. 

The  market defines the official exchange rates of INR, and it is the Reserve Bank of India (RBI) that deals in the currency market to control the exchange rate. The currency market and the exchange rates are subjected to changes and generate arbitrage chances against the exchange rates. The main reason behind the interference of the RBI in the currency market is to ensure that the exchange rate volatility is low.

Value of the Indian Rupee

The value of the Indian rupee relies on various aspects that affect the country’s economy. The value of the Indian rupee is defined by the fundamental economic theory of ‘Demand and Supply.’ This means that a currency with more demand has a greater value. The demand of each currency in the market specifies its value on the basis of exchange of various currencies, and so does the value of the Indian rupee.

High product prices and the outflow of foreign reserves from equity markets hauled the Indian rupee to a new record, lower than the US Dollar. For example, the Russia-Ukraine war has  accelerated the surging prices of crude oil and few other products. This has maintained less demand for the rupee.

Depreciation of Rupee 

The depreciation of the Rupee occurs when the value of the Indian Rupee (INR) falls in the foreign exchange (forex) market against another currency, such as the US Dollar (USD), while the appreciation of the Rupee occurs when the value of INR rises versus USD.

In India’s post-independence history, the government has purposefully devalued the rupee three times: once in 1966 and again in 1991. The devaluation of currency happens when the government formally lowers the value of its currency. The currency’s value determines the impact of currency appreciation and depreciation on trade deficits. 

Now let’s examine what a trade imbalance is, how currencies fluctuate, and the impacts of currency appreciation and depreciation. In an ideal world, a country would be able to manufacture everything it requires locally and export without importing any raw materials, goods, or services. There would be no trade deficit in that country, which is not a real scenario.

The depreciation of the rupee has a huge impact on importers as they are hit particularly hard when the Rupee cost per Dollar rises in lockstep. In terms of the macroeconomy, high import costs have a cascading effect on local prices, which then rise. The depreciation of the rupee could lead to a further increase in domestic gasoline prices, which would push up the cost of other essentials as transportation expenses rise.

A weakening rupee may also harm those seeking international education as their cost may rise. It is also unfavourable for individuals who intend to travel overseas. Due to the significant depreciation of the rupee versus the dollar, international travellers will need to rework their budget.

Factors that affect the value of the rupee 

The factors affecting the value of the rupee are: 

• India’s foreign exchange reserves affect the value of the rupee. They have been boosting in a rapid phase.
• The daily instabilities caused by foreign portfolio investment (FPI) flows should be taken into consideration.
• The US dollar is the external factor that affects the value of the Indian rupee. When the US currency boosts against the Euro, the rupee faces a decline and vice-versa.
• Next factor is the real effective exchange rate (REER). It is an assembly of economists in which the proximate inflation comes into the game. Suppose the rate of inflation in India is higher as compared to other countries, which are linked with its export. In that case, the rupee is overestimated and will get rectified through devaluation.
• Lastly, it refers to the stage where the RBI will negotiate by buying or selling dollars to stabilise the Indian rupee.

Conclusion 

In order to increase the value of the rupee, the government  requires to accept the following measures, such as: 

• Increase our export trades by manufacturing Indian goods in a high proportion that are in demand in the foreign markets. Also, the production of new stuff is required by the foreign markets.
• Indian citizens should feel accountable and purchase only Indian goods and avoid buying stuff from foreign markets.
• More FIIs (foreign institutional investors) should be encouraged to invest in the Indian Stock Market.
• The inflow of foreign currency in India should be improved by expanding the tourism industry globally. Indians who are settled in different parts of the world can help for this purpose and maintain the sanctity of our beautiful country.
• All the black money from Swiss bank accounts should be put into use for the betterment of our country’s people and new inventions.