{"id":196673,"date":"2022-07-21T18:39:21","date_gmt":"2022-07-21T13:09:21","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=196673"},"modified":"2022-07-21T18:39:21","modified_gmt":"2022-07-21T13:09:21","slug":"rupee80-the-story-can-get-grimmer","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rupee80-the-story-can-get-grimmer\/","title":{"rendered":"Rupee@80: The Story Can Get Grimmer\u201d"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article \u201cRupee@80: The story can get grimmer<\/strong>\u201d published in The Times of India on 21st<\/sup> July 2022.<\/p>\n

Syllabus<\/strong>: GS 3 Issues and Challenges pertaining to growth and development of the Indian Economy<\/p>\n

Relevance<\/strong>: Indian Rupee Depreciation<\/p>\n

News<\/strong>: Recently, The Indian Rupee has dropped to a record below the 80-mark against the dollar.<\/p>\n

What are the implications of such a depreciation of the India Rupee?<\/strong><\/h5>\n

In contrast to what many are saying that the rupee fall may help the Indian export to grow, the rupee fall may not help our exports. Here\u2019s why.<\/p>\n

(1) In the case of depreciation, the exports of price-sensitive commodities do well. But exports of income-sensitive goods <\/strong>may not necessarily do well. Income-sensitive commodities perform well when there is an upsurge in foreign income. But at present, the incomes in foreign countries are under pressure.<\/p>\n

(2) At present, there is weak global economic growth <\/strong>due to a surge in inflation.<\/strong> For example, the real GDP growth in the Euro Area and China is expected to fall in 2022.<\/p>\n

(3) In the case of India, there is a change in the composition of exports<\/strong> from price-sensitive items<\/strong> such as leather footwear, dairy products, etc., to more income-sensitive items<\/strong> such as refined petroleum products, iron and steel, chemicals, machinery, and transport equipment (engineering goods), and pearls and precious stones such as diamonds.<\/p>\n

(4) Therefore, at present, there is a lower demand for income-sensitive items<\/strong> that comprise a major chunk of India\u2019s export basket.<\/p>\n

(5) As per the analysis of intra-industry trade<\/strong> (IIT), India is losing out to its competitors, <\/strong>even in exports of price-sensitive commodities.<\/strong> IIT means importing the same line of products, like leather footwear, textiles, and apparel, which a country is exporting, but with different quality.<\/p>\n

(a) The quality and value of price-sensitive items<\/strong> that are imported <\/strong>into India are much higher than similar items exported from India.<\/p>\n

(b) In India, IIT is becoming more widespread because industrial tariffs have in general gone down across countries. This has promoted overlapping trade flows<\/strong> within the same product categories.<\/p>\n

(6) Therefore, India\u2019s major imports like crude oil, precious metals, and coal will continue to cost more as the rupee depreciates.<\/p>\n

Expected Trends in the Exchange Market – Rupee is likely to fall further<\/strong><\/h5>\n

The Law of One Price (LOOP) theory states that an identical (similar) commodity will cost the same in 2 countries if cost is expressed in a similar currency. It assumes no transport costs and no tariffs on the product. Now, what are the factors that contribute to the reduction of currency value?<\/p>\n

(1) Even in the case of LOOP theory, the value of the currency will reduce if Inflation increases.<\/p>\n

(2) Domestic inflation is one reason the rupee is under pressure. Further, inflation is unlikely to moderate any time soon due to various reasons:<\/p>\n

(a) The recent imposition of GST on pre-packaged food items is likely to increase inflation numbers.<\/p>\n

(b) Further imported inflation<\/strong> is not going to ease in the coming days.<\/p>\n

(3) Rupee is also under pressure due in the asset markets<\/strong>. Foreign exchange markets, the foreign institutional investors (FIIs) have become the net sellers<\/strong> in the Indian domestic stock market due to high CAD and higher inflationary expectations.<\/p>\n

(4) As per the UNCTAD\u2019s World Investment Report<\/strong>, foreign direct investment (FDI) fell by 30% to $45 billion in 2021.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article \u201cRupee@80: The story can get grimmer\u201d published in The Times of India on 21st July 2022. Syllabus: GS 3 Issues and Challenges pertaining to growth and development of the Indian Economy Relevance: Indian Rupee Depreciation News: Recently, The Indian Rupee has dropped to a record below the… Continue reading Rupee@80: The Story Can Get Grimmer\u201d<\/span><\/a><\/p>\n","protected":false},"author":10308,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10496],"class_list":["post-196673","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-times-of-india","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704917576},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/196673","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10308"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=196673"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/196673\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=196673"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=196673"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=196673"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}