Background:

  • Depreciation of the currency means a decrease in the value of the currency when compared to the Dollar.
  • As of 10th April 2021, 1 US dollar is worth Rs. 74.73.

Factors affecting the value of the Rupee:

  • When there is a demand for any currency, its value increases and when the demand is lesser than the supply, the currency’s value decreases. As India’s imports are more than exports, demand for the rupee is less. When we import any goods from other countries, in general, we have to buy their currency to buy those goods (We buy other countries’ currencies beforehand and keep them as foreign exchange reserves). So, the demand for their currency goes up and as we push the same amount of rupees out into the circulation, the supply of rupees increases. But demand will not increase. And hence the value of the rupee depreciates.
  • When there is a strong demand for the dollar, its value increases. And then we have to more rupees to buy dollars. Thereby, the value of the rupee decreases.
  • Inflation means an increase in the prices of commodities. If the inflation increases, purchasing power parity of consumers decreases. Thereby they buy less. It leads to economic recession. Thereby rupee value decreases.
  • High interest rates may attract investors, but practically high interest rates lead to an increase in the government debt, thereby GDP growth comes down. Then foreign investors are unsure of their returns, thereby they may take their investments back. It leads to Rupee depreciation. On the other hand, low-interest rates too may not attract investments much resulting in the lack of demand for the rupee.
  • A strong economy and growing economies attract foreign investments because investors are sure of returns. More demand means more value of the currency. If the economy is not strong and if the country is dealing with many issues such as unemployment, political instability, corruption etc., people will not invest in the country and the demand for the currency decreases and hence the value.
  • International factors such as trade wars, changes in crude oil prices affect the international economy. Uncertainty leads to fluctuations in the currencies of most countries.
Also Read :  Is it really worth to become a cashless economy?

 Effects of Rupee depreciation:

  • Because of the Rupee depreciation, Exporters are at the benefit as they will get more rupees for the same amount of dollars.
  • Importers are at a loss as they have to pay more Rupees for the same amount of dollars.
  • Foreign investors will lose confidence in the country’s economy and they will take back their investments leading to further depreciation of the rupee.
  • Tourism and studies in foreign will become expensive.
  • NRIs are at the benefit as they will get more rupees for the same amount of dollars.

Conclusion:

Even though there are some temporary benefits of currency depreciation, it’s not good for the country’s economy. A strong currency attracts domestic investors and also foreign investors and thereby paves the way for economic development.

Image by Free stock photos from www.rupixen.com from Pixabay
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7 Comments

  • Kashish, Oct 15, 2022 @ 3:15 pm Reply

    Good morning everyone,
    I am Kashish Agrawal and i would like to start the Group discussion on the topic ‘Depreciation of rupee’ it means the decreament in the value of Rupee than the other countries’ currencies.
    we know the fact, if there is more demand than its value is automatically increased..
    Same thing happens here, as we see, 1 dollar is approximately 82 rupees.
    But as demand is lesser than tye supply then it’s price decreases..
    This may be due to many reasons :-
    Inflation which means the increase in the price of commodities due to this, purchasing activity decreases the value of rupee.

    Apart from this, our country’s import is greater than export that’s why we have to take other countries currencies in exchange of more number of rupees.
    And if Any other country invest in india, there should be assurance of a safe return which is only possible when country is growing and there should not be any political, economical issues.. Educational system is Developing day by day..
    Hence by improving in these above crisis, we can also resolve the issue of depriving of rupee value .

  • Nagaraj Yerra, Jun 2, 2014 @ 1:39 am Reply

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    containing very useful information about group discussion

  • Unknown, Oct 8, 2013 @ 6:56 pm Reply

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  • Appu Srva, Jul 3, 2013 @ 7:26 am Reply

    Thank you for the positive feedback… :)

  • Sam Tech, Mar 25, 2013 @ 4:02 pm Reply

    Nice blog, Containing very useful information about group discussion. But you can also prepare most important and latest topic for group discussion. Which are based on the relevant issues, currents events and current affairs.

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