Rupee Depreciation : An Analysis The potency and strength of a country today in this globalised world displays through the

health of the economy. In this context, the persistent depreciation of Rupee has sent alarming concerns regarding the financial stability of India. The fall is a result of both external and internal factors. EXTERNAL FACTORS 1. Global economic slowdown: The sub-prime crisis of U.S.A and the consequent Eurozone crisis has severely limited the global economic growth with different countries aiming for strict fiscal measures. This has adversely affected exports from India as well as lessening of foreign investments. 2. Unstable Political situation in West Asia: The political turmoil in Syria and political instability in other oil-producing countries have increased apprehensions for oil supply and energy security. 3. Quantitative Easing by U.S.A: The measure adopted by the Federal Reserve has severely impacted the money outflow and investments to developing counties like India.

DOMESTIC FACTORS 1. Political Populism: The parochial political culture in India shows policies based on political populism rather than economic rationality. The increasing amount of subsidies has raised concerns about governments ability to bridge its ballooning fiscal deficit. The National Food Security Bill has been criticized as more of an election gimmick undermining the economic health of the society as whole. 2. Lack Of Consensus: The coalition politics has led to lack in consensus in policymaking. The frequent disruption of the Parliament has impacted the business sentiment. 3. Widening Current Account Deficit : Increased dependence on imports and moreover on non-essential items like gold have increased the demand for dollars. On the other hand, the rate of growth of exports have not been satisfactory due to infrastructural constraints, lack of proper export promotion policies, inadequate skill development etc. 4. High inflation : The consistent high CPI has led the central bank to adopt strict monetary measures which have impacted industrial growth and thereby our exports and investment inflow, further depreciating the rupee. 5. Investment in gold expecting higher returns acts as a spiral for furthering rupee depreciation .

IMPACTS

1. Low economic growth 2. Inflation : Poorer sections are more impacted due to greater reduction in their purchasing power. 3. Rising unemployment resulting in associated socio-economic problems 4. Manufacturing industries suffer due to lesser import of capital intensive machineries

MEASURES 1. Optimal Rational Economic policies : Decision-making should not be marred by narrow parochial caste-driven or vested interests. Cooperative federalism is required to prevent policy paralysis to counteract the negative business sentiment. 2. Coordination between Monetary and Fiscal policies: RBI and GoI should work in tandem keeping in purview larger interests of the society. Aim should be reduce the fiscal deficit and control inflation along with ensuring economic growth. 3. Attracting Investments : Along with creating positive business sentiment, other advances like tax benefits etc can be given to attract investments. The NRI and Indian diaspora can be particularly targeted in this respect. 4. Export Promotion Policies required: Foreign Trade Policies target can be achieved by providing necessary infrastructural support to the export-industries. Moreover the MSME industries products should be promoted to enhance the export potential basket. Diplomacy should be used to negotiate policies at international forums like WTO,IMF etc. Technology sharing pacts with developed countries can enhance our export competitiveness at the global market. 5. Curbing import of non-essential items : Imports should be restricted only to indispensable items and reducing non-essential items like gold etc. Proper domestic savings schemes like Gold ETF etc can be promoted to reduce the over-dependence on gold import. Focus should be on import substitution and export promotion. 6. Energy Security : Bulk of Indias imports is from oil. Sufficient buffer stocks should be maintained to negate the impacts of sudden shock in oil price rise. Moreover Currency Swap Agreements as with Iran should be explored with other countries to prevent outflow of foreign exchange reserves. Oil potential at domestic level should be explored by investing in proper research and development. Shale gas and and nonrenewable sources of energy exploration should be encouraged. 7. Hedging by Domestic companies: Indian companies like auto industries who import intermediate products and raw materials should go in more and more hedging. 8. International diplomacy : Last but not the least international diplomacy can help in insulating India from global turmoils.

The rupee depreciation has undoubtedly posed serious challenges to Indias economic growth. However the economic potentiality of India cannot be underestimated. A host of sound policies and global economic development along with strong leadership can boost India back on the track for 9-10 % GDP growth.

References: 1.www.thehindu.com 2. indianexpress.com 3.investopedia.com 4. NCERT

Name: Nabeel Mohammed Salim