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7/27/2019 Presentation on Depreciating Indian Rupee : Major Problem in Indian Economy
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Depreciating Indian Rupee :Major Problem in Indian Economy
http://blog.oureducation.in/wp-content/uploads/2013/01/INR.jpg?4dd6277/27/2019 Presentation on Depreciating Indian Rupee : Major Problem in Indian Economy
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Evolution ofthe Rupee
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How it all began
Early Uses
Coinage Since the British Period
Since 1947
Decimalisation
1966 Economic Crisis
1991 Economic Crisis
Revaluation
Depreciation
Dates Currency S
From 1835 1 rupee = 16 anna
From 1 april 1957 1 rupee = 100 n
From 1 june 1964 1 rupee = 10
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Post Independence, the economic crisis of 1966 and 1991 col
attributed to the weakening of the rupee further in global mar
The trade deficits of 1950, resultant inflation and the stopforeign aid, the war of 1965 and drought devalued the rupee f
Subsequent liberalization helped stem the flow till 1991, whstarted facing its next wave of Balance of Payment Issues fr
1990.
With imports restricted and high deficit, the rupee was devaagain especially by 1999.
Rupee after independence
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Between 2000 2007, the rupee stabilized quite a bit and reached levels of 39 (in 200USD.
With high remittances, sustained foreign investment inflows and the development of
sectors of outsourcing and technology, the rupee led a strong battle against the USD
However, the subsequent global economic recession since 2008 has led to it steadily since.
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Lets take asome of crisis in
last five y
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A snapshot of theWorld Economy
The United States of America experienced a major technically known as recession in the year 2008.
The financial crisis was linked to reckless and unslending practices resulting from the deregulasecuritization of real estate mortgages in the United St
The rise in the quantity of bad debt lead to a liquidity
Significant decline in economic activity, 81 public cofile for bankruptcy in the United States
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Survival of the fittest: Ind
It was indeed the survival of the fittest, the Indian econemerged out as a real hero with only minor bruises.
Despite an unprecedented global recession, India remathe second fastest growing economy in the world.
No recession for India
Indias GDP grew by more than 6% throughout this pe
Further, India also made a successful recovery from 20
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The Plight of Indian Econom2011-12
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Phase: SlowdownIndicators: GDP-6.5% as against predicted 7.6
0
1
2
3
4
5
6
7
8
9
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32009-2010 2010-2011 2011-2012
7.9 8.4 6.5
6.3
8.67.3
9.48.5
7.68.2
9.28
6.7 6.1
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Issue of majorconcern:
Depreciating Rupee
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Depreciation or Devaluation?
Method of Exchange Rate Fixation
Fixed Exchange Rate Floating Exchange
Revaluation of
CurrencyCurrency
Appreciation
Currency
Depreciation
Devaluation of
Currency
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What is Depreciation? Currency depreciation refers to a fall in value of one c
with respect to another.
More and more rupees are sold and dollars are brough
Rupee Depreciation
So, if 1-1-2012---1 Re. = 2 Sri Lankan rupees
1-6-2012---1 Re = 1.5 Sri Lankan rupees
INR would have depreciated by 25 per cent.Again if, today 1$ = 45 Rs.
tomorrow 1$ = 60 Rs.
INR would have depreciated by 33 per cent.
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The Weakening Rupee 2nd worst performer in currency market among developing countries.
Lost 15% since May 2013
Indonesia(RUPAIYA)and South Africa(RAND) depreciated by 7% and
10 % resp. They compete with India in Agri-products, Engg. goods,
electronics and chemicals.
Similarly Bangladesh(TACCA) depreciated by 5%, which competes in
garment industry.
Thailand(BAHT) that competes in gems and jewellery, there currency
have depreciated by 7% .
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1
7.5
8.39
7.8612.38
17.01
32.427
43.5
43.47
45.19
39.42
48.88
46.37
46.21
44.17
48.2
53.395
1947 1966 1975 1980 1985 1990 1995 2000 2005
(jan)
2006
(jan)
2007
(jan)
2008
(oct)
2009
(oct)
2010
(22jan)
2011
(april)
2011
(sep21)
Exchange Rate (INR Per USD)
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Causes of Depreciation in Rupees (I
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ROLE OF RBI
Unchanged Interest Rates:
RBI kept its interest rates unchanged in its MonetaryReview on June 17 and July 30.
Keeps repo rate unchanged at 7.25 percent.
Reverse repo rate stays at 6.25 percent.
Cash reserve ratio unchanged at 4.00 percent.
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Effect of Unchanged Rates
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Before we continue
Repo Rate : The rate at which the RBI lends money to commebanks is called repo rate.
Reverse Repo Rate : The rate at which the RBI borrows monfrom commercial banks.
Cash Reserve Ratio (CRR) : The amount of funds that the ba
have to keep with the RBI.
FII : Foreign Institutional Investor, An investor or investment fthat is from or registered in a country outside of India.
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Role of RBI
Authorized Body, Forex Licenses
Investments by Foreigners & ForeignTravel
EXIM Trade
RBI is the apex bank that intervenes, supervises, controls t
exchange markets in order to create an stable and active exch
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High Current Account Deficit Gold Imports, hefty oils bills and decreasing exports due to global sl
higher current account deficit. Our imports are higher than exportsworsening CAD.
The fall of the oil price to US$90/barrel has helped India to fight the dup to some extent but at the same time the Euro zone, one of Indi
partners is under a severe economic crisis leads to reduced exports. ThCAD of around 4.9%, depleting its Forex reserves and depreciating the
B l f T d I E
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Balance of Trade Imports vs Exp
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Oil Imports Issue
ld
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Gold Imports Iss
950 Tons of estimated imports t
10% of import bill, 75% of impojewellary.
33% of worlds Demand Villainous figure in CAB
Need for innovative financial inthat can provide real returns
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Key policy reforms like Direct Tax Code (DTC)
Goods and Service Tax (GST) have been in the pipe line for years.
A retrospective tax law (GAAR) has already earned a lot of flak fross community.
The government announced FDI in retail but had to hold back amore from both opposition and allies.
This has further made investors sentiment negative over the Indi
Policy paralysis
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Role of Government of India
Control measures for Currency
Fiscal
Monetary
Exim
Policy
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Low Growth and High Inflation
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Foreign CapitalInflows.
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Lower Capital Inflows
Although India has emerged as an attractive investment descan woo foreign capital from FII and deposit from Non reside
term, but it is still not enough to make up for deficit.
Further the uncertainty and delay in our commitment to econretrospective taxes, and policy paralysis within the govcreated a fear in mind set of global investor resulting into dec
Investment.
In 2012-13, India received FDI of $22.4bn against $ 35.1 (38%less).
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Recession in developed economies like US made big institutions tomoney from India
L k f C i l I fl
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Lack of Capital Inflows
$3.3 billion of Government & Corporate Bonds Bought vs$6
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Quantitative Easing
Quantitative easing (QE) is an unconventional monetary policyby central banks to stimulate the national economy when standarmonetary policy has become ineffective.
US Federal Reserve announced Tapering QE on June 19,which sta Fire sale in the world currency market, currencies of majorcountries started depreciating including Indias Rupee.
With the news of QE tapering Fiis started offfloading theirinvestments across Asian markets.
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Other Reasons
Increase in Crude prices. Increase in Fiscal Deficit of India.
Rupee Speculation
Devaluation Pressure
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Impact of depreciation of Rupee on
Exporters are the biggest beneficiaries
NRIs become richer
Tourism industry will flourish as the holidays in
India will get cheaper.
Imports will become expensive
Oil prices will increase
Rise in inflation Poor returns on FIIs
Difficulty in repayment of loans
Foreign education will get expensive
Foreign holidays will get expensive
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Impact on Economy
Imports
Inflation
Interest Rates
Fixed Income
Growth
Jobs
Affects of Weakening Rupee on Bus
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Affects of Weakening Rupee on Bus
Positives
Mixed
Negative
Companies having foreign debt will be impacted severely as compared to export or
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Advantages of Rupee depreciation to
I ndian Economy
Beneficial to the Exporters
Good News for NRIs
Benefits to the IT sector
Benefits to Investors invested in International Funds
Benefits to the Hotel Industry
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Disadvantages of Rupee depreciati on to
I ndian Economy
Impact on inflation & fiscal deficit.
A blow to Indian importers.
Exporters face difficulty in securing new orders.
Negative impact on FII flows to Indian market.
Negative impact on Indian students and travellers abroad
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Steps taken by RBI to curb
Rupee Volati l i ty
RBI increases restrictions on gold import by Canceling Margin Fundi
gold. The Govt. increased import duty on gold import to 8 % from 6 %.
RBI creates Demand for rupee by sucking excess rupee liquidity.
The apex bank restricted the limit of individual bank borrowing to 0.5its total deposits (or net demand and time liability).
RBI increased the daily average requirement ofCRRfrom 70 percenpercent.
The RBI will conduct sale of Government of India Securities to suck 12,000 crore.
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Measures to be adopted to curb the conti nuin
of I ndian Cur rency
Measures to Control Current Account Deficit
Measures to Increase Foreign Capital Inflows
Measures to Revive Economic Growth
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Measur es to Contr ol C
To reduce import we should bring in impo
supporting the domestic organizations by provbenefits, grants and proper Infrastructure.
To contain the current account deficit we shoboosting exports by export promotion policiemore stable longer term foreign inflows have ways to alleviate concerns on current account de
Subsidy on import products such as oil should b
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Measures to I ncrease foreign Capi tal F Recession in developed economies and uncertain political Environment made
to pull out their money from India.
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Measures to I ncrease foreign Capi tal F l
Government can create a stable political and economic environme
infrastructure and local support to the investors is another, admdifficult avenue that can be explored in this regard.
Making government bonds available to non-resident investoincrease the inflow of dollars in to the country.
RBI can ease capital controls by increasing the FII limit on i
government and corporate debt instruments and introduce highECBs.
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Measures to Revive Economic Gro
Apart from above measures to Control Current Account defforeign Capital flows, on time policy executions and str
corruption will also help us to revive the economic growth at
Conclusion
Companies should be encouraged to raise fund overseas, fore
will be liberalized further, and there should be curb on importproducts.
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Team Members
Yogesh Batra Anjali Raghav
Rahul Kuchhal
Preety Sharma
Vinnet Goel
Akanshi jain
Nikhil
Bhupesh