The Indian currency is under pressure since the beginning of this year. There is a constant debate among economic analysts regarding a further fall in the INR against the USD. The uncertainty looming across the globe due to the Russia-Ukraine war has further added pressure on the Indian rupee. With the growing inflation and prices of daily use items going up, the depreciating rupee can have a troubling effect on the common man.
How does the Weak Rupee Impacts Our Economy?
India is a net importer country i.e. its imports are more than its exports. The major components of our imports include crude oil, metals, electronics, etc. The payments for these imports are majorly made in US dollars. Now when the rupee is weak, more amount needs to be paid for the same quantity. This leads to a higher cost of raw materials and production. The ultimate increase in the cost of products is passed on to the customers.
When the rupee is weakening, it is a positive for exporters. Weak currency promotes exports, as foreign purchasers have more buying power and shipments are competitive. But when the demand is weak across the globe, the fall in the currency is not supportive even for the exporters.
The biggest impact of the falling rupee is rising inflation. India is one of the biggest importers of crude oil globally. We import 80% of our oil requirements from foreign countries. With the Russia-Ukraine war, the price of crude oil is over $100 per barrel, leading to higher pay for our oil imports. The combination of higher crude oil prices and the depreciating rupee adds more inflationary pressure on the economy.
Can RBI Stop Falling Rupee?
The Reserve Bank of India has taken several measures to slow down the fall of INR. The RBI has recently sold dollars to shield the fall of the INR. With a strengthening dollar, the foreign exchange reserves have declined significantly. The RBI has said that it will further intervene to arrest the fall of the rupee and protect the Indian economy from these jerky movements.