Depreciation of Indian Rupee: Reason and Impacts

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Meaning of Depreciation of Indian Rupee

When US $ 1 can buy 50 rupees today and 60 tomorrow means that value of the rupee has depreciated. It means decrease In a currency՚s value due to market forces not government or central bank policy.

The Indian Rupee has deprecated to an all time low with to the US Dollar, On 28th August 2013, Indian rupee had gone down to 68.825 against the Dollar.

Illustration 1 for Depreciation of Indian Rupee: R …

Reason for of Depreciation of Indian Rupee

  • Current Account deficits (CAD) -It is not good for country because it need for buy to foreign currency.
  • Government Deficit is high-It combined central and state government deficit and stayed around 10 % of GDP
  • Inflation-High inflation rate exhibits a falling currency value, as its buying power decrease relative to other currencies.
  • High Interest Rates-High Interest rate are not beneficial for foreign investors to invest.
  • Slow Growth Rate-4.8 % growth rate and foreign institutional Investors won՚t dare to invest.

Impact of Rupee Depreciation on Indian Economy

Negative Impacts

  • Purchasing imported stuff became very costly. There was shelling out of extra money on imported goods and this impacted oil Imports.

Positive Impacts

  • When currency depreciates exporters make more profit because they get more local currency for every unit of foreign currency.
  • Money saved is money earned