After two weeks I'm writing a blog. Since i was finding some topic to write on. but i realized the crisis that India is facing now is continuously falling value of rupee. It is one of the dark topic so i thought every one should know why Indian rupee loosing its value and what we can do for it.
Money is not an organic creature but its value keeps changing with the
society and its economic conditions. One rupee in 1947 is not the same as one rupee
today, both in terms of appearance and purchasing power.
The value of a country's currency is linked with its economic conditions
and policies.
“The value of a currency depends on factors that affect the economy such
as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets,
foreign exchange reserves, macroeconomic policies, foreign investment inflows,
banking capital, commodity prices and geopolitical conditions," says
Pramit Brahmbhatt, chief executive officer, Alpari Financial Services (India),
a foreign exchange brokerage.
It is
actually quite simple. Less the dollar in indian market, more will be its value
and that means downfall of rupee because as of today you are paying 68
rupees for 1 dollar.Now, we should go into the reasons for the same-
The most
important thing that India imports is crude oil – we import crude oil from
countries like Saudi Arabia, Iraq, Venezuela etc. and these countries don’t
accept the Indian Rupee for payments, they want us to pay them in an
internationally accepted currency like the USD or Euro. It would have been
great if these countries accepted the Indian Rupee but they don't and India
can’t print the USD or the Euro, so we have to rely on other means to get US
Dollars.
How do we get US Dollars?
There
are three main ways in which India gets USD. The first one is obvious enough, when we export goods and
services – we get paid in USD. The second one is also fairly obvious which is
investment. When foreign investors invest in India – they bring in USD and that’s
another way to get USD.
The third way which is not very apparent is
remittances - NRIs sending in money to India.
What do these things tell us?
These things tell us that it is absolutely
essential for us to have a steady flow of USD or other big currency coming in
the country in order to finance our oil bill and pay for our other imports, if
we run out of foreign exchange, we will be in big trouble because without oil,
nothing else will function.
The measure for whether this equation is fine or
not is called CAD (Current Account Deficit), which is largely the difference
between exports and imports and in India’s case, the CAD is becoming higher and
higher with each successive month, and this means that India’s foreign exchange
reserves are diminishing.
One of the big factors worsening India’s CAD are
the ever increasing gold and oil imports. The festival of Akshaya Tritiya
contributed to heavy imports recently, and that in turned made the CAD even
worse. If India spends USD on gold then that reduces the forex reserves for
other important commodities like oil. Now reducing dependency on oil is not
easy and hence reducing its import is not easy.
Theoretically, if there were no gold imports then
that would eliminate the burden on forex reserves, and in a way it will help
the Indian economy. However, you can’t eliminate gold imports completely
because a lot of people depend on gold jewelry and investments for their
livelihood, and India has always imported gold.
So, the problem then is not so much gold imports
but the great pace at which these imports have increased in recent years, and
the pressure it is putting on the foreign exchange reserves, and the worsening
CAD.
Will stopping gold imports help the Indian economy?
The answer to this question is simple – no, simply
stopping gold imports will not help the Indian economy because a lot of people
depend on gold for their livelihood, and they need gold imports to remain in
business and survive.
Will slowing down gold imports help – yes I
believe they will help because they wouldn’t be such a big drain on our forex
reserves and that will be great.
However, the recent rise in gold imports have been
investment driven and that is largely due to the rise in gold prices, and a
lack of other investment alternatives available to Indians.
What we need is a better investment climate that
helps people get other alternates to gold for investment, and that also helps
with the other factors that I wrote about above related to bringing in foreign
exchange in the country. You want a climate where exports rise (services
exports declined last month), foreign investments come into the country – both
in the form of FDI and FII, and all that in turns help the CAD.
Now on a lighter note, the following joke is the
most hilarious one I've read in a long time.
"The only time the Indian Rupee goes up is
during a Toss."
The
INDIAN economy is in a crisis and if we do not take proper steps to control
those, we will be in a critical situation. More than 30,000 crore rupees of
foreign exchange are being siphoned out of our country on products such as
cosmetics, snacks, tea, beverages, etc. which are grown, produced and consumed
here.
A cold drink that costs only 70 / 80 paise to
produce, is sold for Rs.10 and a major chunk of profits from these are sent
abroad. This is a serious drain on INDIAN economy.
What you can do about it?
Buy only products manufactured by WHOLLY INDIAN COMPANIES.
Each individual should become a leader for this awareness. This is the only way
to the country from severe economic crisis. You don't need to give-up your
lifestyle. You just need to choose an alternate product.
Daily products which are COLD DRINKS,BATHING SOAP
,TOOTH PASTE,TOOTH BRUSH ,SHAVING CREAM,BLADE, TALCUM POWDER ,MILK POWDER
,SHAMPOO , Food Items etc. All you need to do is buy Indian Goods.
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