RUPEE DEPRECIATIO

N

Smriti VashisthSneha Padgalwar

CURRENCY

★ Curraunt - in circulation

★ A generally accepted form of money issued by a government and circulated within an economy

★ It is the basis for trade

CONVERSION RATE

★ The price of foreign currency in terms of domestic currency

★ Classification :○ Floating exchange rate - currency’s value is allowed to vary according

to foreign exchange market

○ Fixed exchange rate - government decides the worth of its currency in terms of a fixed amount of another currency

CURRENCY STRENGTH

★ Expresses the value of currency

★ Classification :○ Absolute Currency Strength○ Relative Currency Strength

★ 1 USD = 59.90 INR (Apr 2, 2014)

61.24 INR (Mar 9, 2014)

62.31 INR (Feb 7, 2014)

Currency Strength over the years 2004 - 2013

Currency Strength over the last year 2013

DEPRECIATION

★ Depreciation refers to the fall in value of a currency caused by the demand for foreign currency exceeding its supply in the market

AND APPRECIATION

★ Appreciation is the opposite of depreciation, i.e., the rise in the value of a currency

DEPRECIATION OF RUPEE

★ Reduction in purchasing power of Rupee in terms of Dollars

★ Indian Currency has depreciated close to 22% in 2013

REASONS FOR RUPEE DEPRECIATION

★ Demand Supply Rule

★ Fiscal Deficit

★ Oil Prices

★ Dollar Strengthening

★ Inflation

★ Volatility in the equity market

DEMAND SUPPLY RULE

★ Every country has an external account to keep track of the cross-border transactions being carried out :○ Current Account

○ Capital Account

★ In recent times, our current account deficit has widened and capital flows are not being able to bridge the gap.

FISCAL DEFICIT

★ When a government’s total expenditures exceed the revenue that it generates, it is called fiscal deficit.

★ High import of gold and crude oil burdened the deficit and caused it to rise to 6.8%.

★ Fiscal deficit was measured at 4.8% of the GDP in 2012-2013.

OIL PRICES

★ The domestic demand for oil increases

★ The demand for dollar also increases

★ Cumulative effect - avalanche breakdown

★ Faulty government policies on oil and gas subsidies is responsible

DOLLAR STRENGTHENING

★ Due to recent measures taken by US government, the state of dollar is improving.

★ Recession in the Euro-zone

★ US Fed has shown signs to end their stimulusa plan devised by the central banks to counter a weak economy by jump starting it. Actions such as lowering interest rates, increasing govt spending and quantitative easing to put rise in the struggling economy.

INFLATION

★ Prolonged inflation leads to overall worsening of economic prospects and capital outflows.

★ REER index reflects a country’s competitiveness in international trade.

★ The REER index has fallen by 13.84% during the last year.

★ Rising costs of raw materials lead to the increased production cost.

VOLATILITY IN THE EQUITY MARKET★ Equity - investment made by FIIs in Indian companies

★ If the investors withdraw their money, it decreases the inflow of dollars in the Indian market

★ Thus, by the demand and supply rule, the dollar becomes stronger.

★ A temporary ban on import of gold coins caused withdrawal of investments by FIIs.

★ Overseas investors pulled out Rs 44,162 crores from the Indian capital market in June 2013.

CONTRACTION OF INDIAN ECONOMY★ Increased unemployment

★ Despite the growth of IT outsourcers, the manufacturers have suffered from under investing in ports, road, and other infrastructure due to low-cost workers.

★ Poor growth of manufacturing, mining and agricultural sectors in 2013

★ During June 2013, the aggregate industrial production in India reduced by 2.2%.

★ In July 2013, the RBI predicted a growth of 5.5%, which was less than the earlier (5.7%).

QUANTITATIVE EASING

★ The cause for rupee depreciation nowadays.It was started in 2008 by USA

VARIATION IN RUPEE PRICE (2008 - 2013)

IMPACTS

IMPORTERS EXPORTERS

IMPORTED GOLD

Cost of Imported Gold increases

FUEL PRICEBurdens the Oil Marketing companies which then affect the consumer due to rise in the price and causes inflation

STUDENTS STUDYING ABROAD

These students are severely affected

TOURISM

If Indian people want to go aboard it will become more expensive for them as Rupee Depreciation occurs

OVERSEAS INDIANS

These people are benefited due to Rupee Depreciation as they earn income in terms of dollar

COUNTRY’S ECONOMIC GROWTH

PEOPLE BENEFITED

★ Beneficial to Exporters

★ Good news for NRI

★ Benefits to IT sector

★ Benefits to Hotel Industry

★ Benefit to Investors invested in International Funds

PEOPLE IN LOSS

★ Negative impact on Indian Students and Travellers Aboard

★ Impact on Inflation and fiscal deficit

★ A blow to Indian Importers

STEPS BY RBI AND GOVERNMENT

★ Capital Outflow

★ Encouraging Capital Inflow

★ Limited Imports and Encouraging Exports

STEPS BY RBI AND GOVERNMENT

★ Oil Imports

★ Trade Deficit

★ International Cooperation

REMEDIES

★ Boost Exports and Develop import- substituting industries

★ Subsidies to the use of renewable resources

★ Increase import duty on Gold

REMEDIES

★ Create a stable environment to increase foreign investment

★ Quantitative Easing

Dollar in escalatorRupee on ventilator

Nation in ICUWe are in Coma

Onion in showroom Gold gone

GOD BLESS INDIA

QUESTIONS???