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The Indian rupee gets its name from the rupiya, which was first issued by Sultan Sher Shah Suri in the 16th century in the form of a silver coin. The Indian rupee coins are issued in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees, and five rupees.
One paisa is 1/100th of a rupee. Coins worth 50 paise or less are called small coins, while coins equal to or higher than one rupee are called rupee coins. Paper currency is issued in the denominations of 5, 10, 20, 50, 100, 200, 500, and 2,000 rupees. The demand for the Indian rupee, or any other currency, determines the value of the rupee.
Why is Rupee a Weak Currency?
Here are some of the reasons why the rupee is a weak currency and why it is not equal to the American dollar.
- Huge trade deficit: India imports more goods than it exports. This results in a huge imbalance in trade and is called the trade deficit.
- Lower capital inflows: India is an attractive destination that is wooing foreign capital and money from non-resident Indians.
- High current account deficit: Indian foreign exchange reserves have dropped from a peak of 320 bn to around 290 bn now.
- Devolution pressure: People are selling rupees to buy dollars.
- Low growth and high inflation: Global investors are nervous about investing abroad in other nations such as India due to the economic crisis.
Value of Rupee
When demand for a currency rises, so does its value. It is termed the appreciation in a currency. And if a currency’s demand falls, its value falls. This is called depreciation.
When more and more overseas investors invest in India, the demand for Indian currency rises. When international investors or corporations invest in India or purchase Indian products, they must first convert their dollars to rupees. For that, they need to sell dollars and buy rupees. As a result, demand for the Indian rupee grows, and its value against the US dollar strengthens.
On the other hand, when Indian people and businesses import something (such as crude oil, gold, or other valuables), they must pay in dollars (the de facto global currency).
As a result, Indians sell rupees to purchase dollars and make the payment. Due to this, the demand for the dollar rises, and the rupee’s value falls.
The rupee has fallen because India is a net importer, which means the country imports more than it exports. So there is always more demand for dollars than rupees.
At independence, 13 Indian rupees were equal to one British pound, and 4.03 US Dollars made one British pound. Therefore approximately 3.31 Indian rupees made one USD.
Since then, the value of the rupee has been deteriorating. It is very difficult (impossible) for our country to reach $1= 1 INR in the near future.
The thing to remember is that a strong currency does not indicate a strong economy.
How Can the Value of the Indian Rupee be Increased?
1) Increase in the GDP: This is a surefire way to increase the value of a country and its currency. GDP is a very safe indicator. Suppose we can increase the GDP of the country with the help of an increase in the manufacturing output and agricultural output. An increase in GDP would naturally reduce dependence on other countries for the necessary resources and would naturally increase the value of the country.
2) Decrease in imports and increase in exports: Any country which is a net foreign exchange earner with healthy foreign exchange reserves would receive greater valuations in the international currency markets since that country is not exposed to the vagaries of the economics of other countries.
3) International/cross-border relations: A country with internal rife or disputes with the bordering nations has to spend a lot of its resources on maintaining its territorial integrity and internal law and order. In such an event, the precious resources of the country are ill-utilised in a non-productive sector. This will impact its valuation in the long run since the core sectors of Education and Health are the first victims in such a scenario. Long-drawn strife (external or internal) would sound like a death knell to any economy.
4) Other measures: A parallel economy is very dangerous to any country since it will ruin its legal economy and become a poser to law and order and its legitimate reserves. This needs to be controlled very much if a country has to progress. Transparent public decision-making, transparent award of contracts, reasonable taxes, and meeting the aspirational needs of the general population are some of the measures that could control this menace. A corruption-free (relatively) country has a stable economy and commands a premium in the international currency markets.
Conclusion
When demand for a currency rises, so does its value. It is termed as appreciation in a currency. And if a currency’s demand falls, its value falls. This is called depreciation.
There are several reasons why the rupee is a weak currency and why it is not equal to the American dollar. Some of them are huge trade deficits, lower capital inflows, high current account deficit, devolution pressure, low growth and high inflation.
Some of the ways of increasing the value of the Indian rupee are increasing the GDP, decreasing imports and increasing exports, stable international and cross-border relations and a relatively corruption-free country.
