Why Indian Rupee Is Going Down? - Impact Of Rupee Depreciation On Indian Economy

Depreciation Of Rupee

The rupee hit a record Low of 81 to a dollar almost 10% from a year earlier.

Foreign investment leads to increased demand for Rupee while increasing exports to increased Supply of Dollar. Both these make the rupee appreciable.

But the rising Imports and foreign investors exit from the Indian market are the deep depreciation factor for the rupee.

Reasons For Rupee Depreciation

We are in a position to uncover what are the reason behind the rapid depreciation of the rupee recently. Normally, there are two reasons for the Rupee Depreciation - 1) External, 2) Internal.

External Reasons For Rupee Depreciation

Recent Rupee Depreciation is mainly linked to external factors.The major reasons behind this inflation are economic stimulation payments and supply chain disruptions. Massive Economic stimulation was launched to post Covid Economic revival all over. Because of this, the classic situation of too much money chasing too few goods has been over. Due to which the prices are growing at record rates.

High inflation and volatile global economic situation reduced the risk-taking of investors. That's why they are preferring US Treasury Bonds or Gold for less-risky Investments. Lower Investments also mean a low supply of dollars or rupee depreciation.

The cost of Crude Oil has a direct impact on inflation, because the cost of transportation is included in the cost of every good, which depends on the price of crude oil.

Impact Of Rupee Depreciation On Indian Economy

Disadvantages Of Rupee Depreciation

As per the RBI estimates, the depressions of the 1 Rupee against the dollar leads To an increase in inflation by 0.1%.

Another negative impact of dollar appreciation is seen in the devaluation of forex resources.

Depreciation Of Rupee: Benefits

• India's export becomes more competitive due to the depreciation in rupees.
• It may also lead to more foreign tourist arrivals in India.