Impact of Falling Rupee on Indian Economy

In continuation with our series of sample essay writings in the descriptive section, we are publishing one more article to assist Bank aspirants in preparing for Indian Bank PO mains and IBPS PO mains exam.

Here in this article we are sharing our words on the aforementioned topic – The impact of falling rupee on Indian economy. Meanwhile, you can read our previous articles of sample essay writing by visiting this page :- Click Here

Impact of falling rupee on Indian Economy

Impact of Falling Rupee on Indian Economy : An Essay

The falling of Indian rupee is a burning issue for Economy of our country. There are various reasons for this which include the rise in crude oil prices, portfolio outflows from India due to selling of stocks especially by foreign portfolio investors (FPIs) and a growing anticipation of the interest rates rising in the US. At present the Indian rupee is under great stress as overseas investors are reducing their exposure to Asia’s third largest economy amid International uncertainties and mounting worries over the domestic economy.

A depreciating rupee usually affects the local economy in several ways. The imports become more expensive while putting an increase on export revenues in rupee term and adding a burden on the economy. As a result, it keeps the cost of oil imports high. If this continues then it is not a good sign for Indian economy because the country will have to pay more in local currency per barrel of crude oil, which will keep the oil import expensive. It may also affect the current account deficit if the gap between foreign earnings and domestic expenditures keeps on rising. As foreign capital inflows helps in bridging the gap between the two which involves the balance between both capital account and current account.

Moreover the fall of rupee has the potential to provoke inflation throughout the economy as higher oil imports would lead to higher fuel costs which will either raise or at least keep the pressure on the total cost of economic activity. So if the trend persist, a falling currency might compel RBI to keep policy rates high for a longer period of time. There would also be an added pressure on corporate margins as higher imported input and higher local prices add to costs because the price of imported raw materials remains high in rupee terms.

On the other hand, rupee depreciation makes Indian goods and services cheaper for Overseas buyers, thus leading to demand and higher revenue generation. The foreign tourist would find it cost effective to come in India, therefore increasing the business of hotels, tours and travel companies.

Hence, the exchange rate is a powerful tool which can be used to examine many key industries with fluctuations potentially having a serious impact on the economy, industries, companies and foreign investors. Therefore the government with the help of various sectors should try to combat with this issue in order to make Indian economy more stable and flourishing.

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