CAUSES : -
RUMAN RAHAMTULLAH NATIONAL INSTITUTE OF TECHNOOGY, ROURKELA
The current condition of rupee is due to a cascade of events, according to me the cynosure of them is lack of industrial power to provide sufficient goods for consumption and export, which could be due to the guidelines set by environment ministry and political pressure and taunt on the illiterate and poor people of rural areas which are haven for different minerals. People are deceived to protest against mining and construction of industries which would have been a boon to them. Increasing lust for gold in our country especially for following certain old dated traditions and heavy demand for fuel puts intense pressure on the government to import gold and other precious metals and fuel from gulf countries which increases the market deficit which in turn weakens money a clear cut implication for foreign investors to pull out their money from the indian market. Change in lifestyle of the educated population further pushes for import of goods from foreign market. The result is that rupee stands at a staggering rs.60 per us $. EFFECTS : Effects are widespread and not just confined to only big businessmen but also hits the common people where it hurts the most the pocket. The government has to pay extra money for import of crude oil which increases the deficit even more. Import costs have increased which means companies have to shed more money for raw materials and technology which 19
increases the cost of production implicating an imminent price rise of products and services, cut in remuneration and companies refraining to recruit more employees in such hazardous environment which in turn leads to unemployment and acute pressure on money earned by an individual at high inflation rate. The depreciation of rupee has impacted the automobile sector in three ways. First, input costs have risen as these companies use imported components. Second, some companies will have to pay higher royalty to foreign parent firms. Third, many have foreign currency loans in the form of external commercial borrowings and foreign currency convertible bonds. MEASURES TAKEN : We have with us the most intellectual bureaucrats handling the most important portfolios of the government. Graduates from harvard and cambridge are known to turn fortunes. Currently, MR. P. Chidambaram has raised import duty on gold to reduce its demand and plans to bring down the amount of import significantly in the next fiscal year, encouraging forei gn investments in India and FDI in retail. RBI has increased the interest rates to reduce the supply of rupee to the market. This will ensure that inflation is kept under check.