This is an indication that the current slide in rupee is more to do with external factors and less attributed to any intrinsic weaknesses within the economy. If we compare exchange rates of Indian rupee against all these currencies during the same period, we found that except for depreciating against the US dollar and Chinese yuan, Indian currency has appreciated against all major currencies during this period. On the other hand, euro, pound sterling and Australian dollar appreciated against US dollar during this period (see chart). If we compare changes in the exchange rates of major global currencies viz-a-viz US dollar during the last 45 days period (between June 1 and July 14, 2022), we found that the most depreciating currency against US dollar was Japanese yen, followed by Canadian dollar and Indian rupee. In order to understand if the current depreciation of rupee is more due to external factors or some weaknesses inside Indian economy, let us compare how Indian rupee is doing as compared to other major global currencies. How rupee is doing viz-a-viz other currencies This high import dependence is likely to increase India’s import bill in the face of sharply depreciating rupee. For edible oils, India meets 55-60% of its need through imports. For gold, imports made up 86% of India’s total supply between 2016-2020, according to the report of the World Gold Council. Similarly, coal sector in India has witnessed demand-supply mismatches recently, resulting into substantial recourse to imports - more than 25% of the domestic consumption. For most of these products, India is significantly dependent on imports given lack of adequate domestic production.įor instance, India is the world’s third-biggest oil consuming and importing nation with more than 85% dependency on imports to meet crude oil needs. These products comprised almost half of India’s total imports last fiscal year and in May 2022, the latest month for which trade data is available (see charts). Major import items for India consist of petroleum products, gold, coal, diamond, electronic integrated circuits, automatic data processing machines and palm oil. Let us understand this in the context of Indian economy. If imports are inelastic in nature, the depreciation may hurt exports and the economy at large. responsiveness of exports and imports demand to change in price. The actual impact of a depreciating currency depends on the elasticity of exports and imports i.e. On the other hand, imports become costlier, thereby decreasing domestic demands for imported products. Currency depreciation increases the competitiveness of exports in the international markets by decreasing per unit price of exports in dollar terms. Rupee depreciation effects on exports and imports: What economic theory saysĪ depreciating currency is helpful in increasing the exports and controlling the imports. UP government appoints Deloitte India as consultant
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