What are the consequences for the country?
Indian Rupee has touched a life time low of 79.47 as on 12.07.2022. It has been on a downward slide for quite some time now. Every day, it goes a little lower than before. This even after RBI has been intervening and buying US Dollars in an attempt to stop Rupees slide.
As the Rupee continues to weaken against the US Dollar, citizens should start to worry about the consequences of such a decline.
Almost all international trade happens in US Dollars. India earns US Dollars from its exports and also gets a substantial amount via remittances from its citizens working abroad. International remittances itself contribute 50 to 60 Billion US Dollar every year to our reserves. Our reserves stand at around 600 Billion US Dollars but are declining quite rapidly.
The consequences of such a decline are
- All our imports become expensive. We have to pay more dollars for the things that our country buys. Prime among them are Crude Oil, Gold, Electronics, etc. More expensive Crude oil means that after refining the factory gate price of Petrol, Diesel and LPG is higher than the present price. This leads to inflationary pressure on all prices as the nation runs on this basic input.
- Gold, the yellow metal that Indians love gets dearer. And the government hasn’t been able to inspire confidence in the public to buy Gold Bonds instead of physical gold.
- Electronics becomes expensive. We import almost all cutting edge electronic technology. Computers, Servers, Mobile Phones, Communication equipment, all become expensive.
- All these rising prices contribute to inflation in the country.
There are some upsides too.
- Our exports become cheaper to other countries and thus become attractive for them.
- Our exports rise, bringing in much needed foreign exchange.
- As rupee becomes weak, our people who are working abroad can send lesser money back to India to acquire assets, thus land, building, apartments and offices become an investment avenue for them.
- It becomes cheaper for tourists to come to India as their money buys more things in India.
- Medical tourism can increase provided foreigners see India as a safe destination.
But the problem is that India and Indian economy no longer inspires confidence, even among the NRI’s. They too are shying away from investing in a country whose economy is sliding downward and where job losses and income losses have become common.
Experts say that Rupee may touch 100 to a US Dollar. If that happens, we, the locals, will have a tough time ahead.
But who can stem this tide?
Apparently the mess has been created by the government. From the date of demonetization till now, Government has created an additional 30 Lakh Crores of money. And anything in excess sees its value going down. India has also borrowed very heavily during this period. From this point onward if the economy is not managed properly, especially given that the world is heading towards a recession, India could see itself slide into a situation similar to Sri Lanka. It is only the government that can save the day, provided of course that it firsts acknowledges that there is a problem and then starts to solve the problem. Both of these are missing from the Government’s agenda. The government wants to just keep us under the illusion that all is well with the country.