There was once a time when ₹1 was equal to $1 i.e in 1947 when India got Independence.
All your dreams would have come true.
It would have been very easy for you to vacation abroad in your dream country. (Costing in just 1000s) or buying luxury goods (iPhone at just ₹600).
It would have been very cheap to import. Petrol could have been purchased by the country for a fraction. Studying abroad would have been inexpensive.
But here's the reality check: if this were to happen, it would imply that either no foreign investment would flow to India, or very little would because the previously inexpensive labour in India would now be expensive, or the wage value would increase to that of their own country. They'd rather hire citizens of their nation or travel to another where they could get cheaper labour. Currently In India, approx 60% of GDP contribution is from the services sector and it employs 32% of Indians. (Statista)
It would have become very expensive for these companies to maintain the IT sectors and hence, they would have shut down their offices and left the country. This would lead to large-scale unemployment in the country and an economic crisis.
So, Is it truly beneficial for the country to make the rupee stronger?
Normally the export-oriented countries (Like China) prefer to keep their currencies weak because it would be cheaper for other countries to buy their goods.
On the other hand, import-oriented countries would prefer to have a strong currency because they can buy goods from other countries for cheap.
India imports a significant amount of oil from Middle Eastern nations. The cost for India to import oil would have been far lower if the Indian rupee had been at par with the dollar.
What is India's position on this?
In reality, India imports more goods than exports. Hence, India is an import-oriented country, yet India is in a unique position.
Source: Dezan Shira and Association
The things that India exports are the ones to bring the majority of the economic growth and employment to the people, i.e the service sector. That’s why India encourages the rupee to remain weak in order to promote economic growth.
In fact, some economists argue that India should further devalue the rupee so that the economic growth in the service sector could rise and only then will we be able to achieve the five trillion-dollar economy.
But this is a controversial topic.
Some believe that devaluing will lead to instability and so it shouldn't be done.
So what should be done then?
We need to address the root causes.
India should reduce its import dependency on things like Oil that increase expenditures, by focusing on renewable energy, alternative fuels and strong public transport infrastructure.
Industries from all sectors should be promoted, so that India's export dependency on the IT sector is reduced. cheap labour in India should not be the only métier
We should always remember that economic growth and development in the country are not directly linked with the currency exchange rate. A country like Japan has a fragile currency but is still a highly developed country.
The value of the currency that is on the currency exchange Board does not matter much, it can be changed. It should be compared with its value in the past. If the government says today that from tomorrow onwards $1 will be equal to ₹100, then theoretically Rupee will become strong immediately. But it also means that the salary of the people and the cost of the goods will decrease proportionately. Overall, doing this will have little impact.
The reason why currencies are always viewed relative to one another is because a number of other things truly affect the currency's initial value.
References:
“Asiapedia | India’s Import & Export 2018-19.” Www.dezshira.com, www.dezshira.com/library/infographic/india-import-export-2018-2019.html.
Shah, Rashesh. “India Needs a Weaker Exchange Rate.” Mint, 10 June 2016, www.livemint.com/Opinion/Yd6BOR2JYjMVA2zATmHyGM/India-needs-a-weaker-exchange-rate.html.
Statista. “India - Distribution of the Workforce across Economic Sectors 2018 | Statista.” Statista, Statista, 2018, www.statista.com/statistics/271320/distribution-of-the-workforce-across-economic-sectors-in-india/
Zainaba, Roshni. “Was 1 Rupee Really Equal to 1 USD in 1947?” ExTravelMoney, 6 Jan. 2021, www.extravelmoney.com/blog/was-1-rupee-really-equal-to-1-usd-in-1947/
Comentários