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For the last couple of months, Indian rupee has become the worst performing Asian currency against the dollar. Indian currency is performing worst among all the major emerging economies. In the first week of July 2013, it crossed the psychological barrier of Rs. 60 and reached to an all time high of Rs.61 to the dollar. The rupees, in recent times, have not only depreciated against dollar but against all the major currencies. Infact, the decline in the value of rupee has been sharper relative to British Pound and Euro. By the 2nd week of July 2013, 1 pound becomes equivalent to Rs.90.44 and 1 Euro equivalent to Rs.78.21.
Depreciation has led to the costlier imports and since India is an import intensive country, its current account deficit (CAD) and trade account deficit is increasing at an alarming rate. Depreciation has increased the burden on the already high external debt of the country and by the end of March 2013; it increased to US $ 390.0 billion. The fall in the value of rupees has adversely affected the pace of economic growth as it has added pressure on the high inflation rate prevailing in the country. Depreciation has directly impacted persons working in import-intensive industries and allied sectors, those wishing to travel abroad or planning higher studies abroad. In short, the rupee's decline has affected everyone in the economy.
Following are the major causes for this persistent decline in the value of rupee:-
Looking at the current economic outlook, it is necessary for both government and RBI to step in and prevent the further depreciation of rupee. Following are the measures that should be taken by RBI and government:-
All said and done but it may be argued that if policy makers attempt to arrest the further depreciation of rupees, then the over-all economic growth will take a back seat. Hence, we can say that the policy makers are facing a real challenge of arresting the fall in the value of rupee as well as reviving the already slow economic growth. The future of the Indian economy now depends on how our policy makers deal with the current global economic situations.