Reasons for downfall of rupee
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 60 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
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