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Amid global meltdown , rupee breaches 87 against the dollar

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(Source – The Hindu, International Edition – Page No. – 1)

Topic: GS3 – Indian Economy
Context
  • Rupee depreciated past 87 against the U.S. dollar due to global uncertainties, impacting imports, exports, and India’s economic stability.

Rupee Breaches 87 Mark

  • The Indian rupee fell by 0.6% (49 paise) to close at ₹87.11 per U.S. dollar, after briefly touching ₹87.3.
  • The depreciation followed increased tariffs by the U.S. on Canada, Mexico, and China, affecting emerging markets and stock markets globally.

Government’s Stance on the Decline

  • The Finance Ministry official stated that India does not use exchange rate policy to boost trade but focuses on managing currency volatility.
  • The Indian government remains unconcerned about the rupee’s decline, viewing it as part of global economic uncertainty.

Rising Dollar Index and Global Impact

  • The Dollar Index, which measures the dollar’s strength against major currencies, rose to 109.7.
  • The rupee’s depreciation makes imports more expensive but improves export competitiveness.

Government’s Economic Strategy

  • India aims to handle global uncertainties by enhancing export competitiveness through better quality goods rather than currency manipulation.
  • The government’s focus is on self-reliance, developing competitive advantages, and removing cost disadvantages through trade and regulatory policies.
  • The Budget includes steps to streamline regulations and reduce trade barriers for long-term economic growth.
Rupee Depreciation
Potential Advantages

  • Boosts Exports – Indian goods become cheaper for foreign buyers, increasing demand.
  • Encourages Foreign Investment – Foreign investors find Indian assets more affordable, attracting capital inflows.
  • Tourism Growth – India becomes a cheaper destination for international tourists, boosting tourism revenue.
  • Incentivizes Domestic Manufacturing – Imported goods become costlier, encouraging local production and reducing dependency on imports.

Challenges of Rupee Depreciation

  • Rising Import Costs – Essential imports like oil, electronics, and machinery become more expensive, leading to inflation.
  • Higher Fuel Prices – A weaker rupee raises crude oil import costs, increasing fuel prices and transportation expenses.
  • Increased Foreign Debt Burden – Loans borrowed in foreign currency become costlier to repay.
  • Capital Outflows – Foreign investors may withdraw investments due to uncertainty, affecting financial markets.

 

Practice Question:  How does rupee depreciation affect different sectors of the Indian economy? Suggest measures to balance its benefits and challenges. (150 Words /10 marks)

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