What is the reason behind rupee value depreciation ?

The past two weeks have been disastrous for the rupee value against dollar currency. The same time last month (22-Aug-2011), rupee value against dollar was 44.5 – 45.0 range, at this time of writing this article it is hovered to the range of 49.0 – 50.0. It is expected to raise further which would result in weakening the rupee value against the dollar currency. Rupee value depreciation is the hot topic nowadays due to the huge fall in value. This kind of increase would have the drastic impact on the macro economy of the country like heavy raise in the import cost where countries like India largely depends on the importing on Oil and other crucial raw materials needed for the industries.

Rupee Value DepreciationThis article explores the reason behind the rupee value depreciation, how RBI trying to defend the rupee value and how it is going to affect the industries. I come up with this article after the readers request to understand the currency war on recent days. If you have any thoughts, please post it in the comments section. Subscribe to our future articles here. Also like us on facebook page.

also read:

How currency value is determined?

Rupee VS DollarWe are not going deep dive into economic terms to understand the currency value fluctuation. There are many factors to decide the currencies values but that could be very difficult for the common man to understand the theory. Here I will put it in the simple words why the currency value is often fluctuated. A currency will tend to become more valuable when its demand is higher than supply. A currency will tend to become less valuable when its demand is less than supply. It is the basic theory. We need to understand in the global economy terms, when the currency will have more demand and when it will have less demand.

Remember that exchange rates are expressed as a comparison of two currencies. It is always relative and can be measured between two countries. Interest rates, Inflation and exchange rates are highly related. Reserve bank change the interest rates to control the Inflation and exchange rates.

We can take our real time example of stock market investment to understand the above principle. As we know that, our stock market is dominated by the overseas investors (outside India), because of the our growing economy and industrial development. When our economy is doing well and market is performing better than other countries, overseas investors would invest heavily on our market. How they would put it in our market?. They will sell or convert to our currency and invest in India. It is clear that when more investors coming to India, the demand for the currency will be very high. Our rupee value will be increased against dollar. In the same way, when they are pulling out of market, demand for the rupee will be decreased and value is depreciated.

Here I am talking only about the dollar, because it is the global currency and most of the countries trading using the dollar as trade reserve currency. The above example is given to explain it in simple words, the demand for a currency would come in the different way. When we are importing from other countries, we should have the currency of that country to pay for the trade. The value for the currency is fluctuated on real time.

If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (CNY, ¥) was pegged to the United States dollar at ¥8.2768 to $1.

Why RBI intervene on Rupee Value Depreciation?

In the last week we have seen RBI has acted to stop the erosion of rupee value against the dollar currency. What it did was  sold the dollar currency in the market to increase the value of rupee. But, it is very difficult for the Reserve Bank of a country to adjust the value of the currency, the long term solution would be fix the problem in economy and bring the inflation into control. You would wonder why RBI has to intervene on rupee value depreciation. Note that, RBI would not allow currency to be higher after certain level because of the exports would get affected like IT companies would suffer if the rupee get appreciated against the dollar. However, if the country’s economy is not in good shape, no one can not stop the falling rupee value.

India is heavily depend on the import of raw materials and Oil for its industrial development. In the decreasing rupee scenario, the outgo of money will be much higher. This would affect the expenses for the companies who imports raw materials for their factory and all the Oil Marketing Companies (OMC) will incur heavy payment to import the Oil. Now you would have understood why the Petrol prices have been increase in the last fortnight. If you look into the news papers, the reason said by our finance minister was the depreciation of rupee value against dollar.

Updated (05-Sep-2013):

Dr. Subbarao has retired from the RBI governor job and Raghuram Rajan took over as RBI governor from 5th September, 2013. He will assume the office for the next five years. He has the toughest challenge of fighting with the lowering economy and raising inflation.

Raguram Rajan Takes Over as RBI Governor

Raguram Rajan Takes Over as RBI Governor

Major Factors Influencing the Currency Value

In the above section, I have explained in the simple words to make a common man understand the currency fluctuations. This sections write down few economic conditions when the currency value will be under pressure.The following are the three major factors influencing the changes in the currency values. There are many other factors too, but we are not talking about all the factors in this section.

  • Inflation

    • As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies (What is Inflation?).
  • Interest Rates

    • A higher interest rates offer good returns compare to other countries. It will result in the foreign capital come into the country. Lower interest rates decrease the currency value. Note that interest rates has the close relation with interest rates. The currency value would not be affected only based on the interest, it is impacted based on the other conditions like inflation or economic situation.
  • Current Account Deficits

    • Basically  current account of a country presents the status on the trade of a country between other trading partners. If there is any deficit in the current account, that means country is doing more trading outside the country then its actual earning inside the country. This situation is not good for a country because the country needs to buy more foreign currency to fulfill its need inside the country. A country needs to manage its deficit within control, otherwise it will lead to a economic problem. More demand for the foreign currency would reduce the value of that country’s currency.

Impact of INR vs USD

In the last two weeks Indian rupee has depreciated about 7% against the USA dollar value. It is expected that it would continue the slide as many macro economic factors not in favor of Indian economy. The following are the factors which would slide down the rupee value.

  • Foreign Funds Outflow

    • It is the major concern of Indian economy now. Because of the global uncertainty and various economy crisis like Europe sovereign debt problem, US economy problem, etc leads to search for the safe heaven among the investors. They are quickly pulling out the money fro Indian market and investing in any other safe investments like Gold or US dollar.
  • Government Deficit is High

    • The government finances are in a bad shape and the combined central and state government deficit has stubbornly stayed around 10 per cent of GDP. It is high deficit and investors lost faith in the local economy.
  • Political Uncertainty and Corruption

    • This is one of the major factor for any country to stabilize the economy. In India, last one year we are seeing the series of corruptions and there is no good news from the ruling party (Congress) about the economic reforms and lot of agitation among the citizens including the veteran Gandhian Anna Hazare’s campaign of Fight for Second Freedom which took attention from global media. India needs political change to gain confidence among the investors.

Lighter Side

Rupee Value Depreciation - Cartoon


Updated (29-June-2012):

The rupee value against dollar is around Rs. 57. It is expected that it will go further down in the coming days. The latest new reveals that India is in recession. The govt. data provided on the GDP is not correct, there is mismatch between the various sources released data. According to the real data, India’s growth is in the negative trend. We are moving back to the olden days. Please read this article.

Understanding the currency basics is not as simple as reading this article. This article provides the very basic details about the India’s situation and devaluation of rupee in the recent time. If you would like to understand the different currency market in the world, please read the book Currency Wars. It is one of the best seller in the subject of the currency market.

Updated (09-July-2013):

At present rupee against the dollar value is trading around Rs. 61. This is another historic low in Indian history. Fuel prices are shooting up to the peak. RBI has told that it will not much intervene on curbing the rupee decline. The only solution which good for the country is to strengthen the domestic market with industries that Agriculture, Hard Wares, etc. There is no rule that export should be only hard ware or industry, even agri products should be produced more. Consider few years earlier, we could export lot food grains to other countries and also could maintain the inflation at lower level, how is that achieved?. So, there is a major flaw in the policies which could not trigger any employment and productivity.

I hope this article would have given an idea about the rupee depreciation and the reason why the currency is changed. But, there are hundreds of parameters to decide a currency value and politics also there to manipulate the own currency which China has done for a long time. The above are the very basic idea on currency value and how it is affected. If you have any thoughts, please post ti in the comments section.

Update (03-Sep-2013):

The free fall of the currency continues without any look back. I have published another article on rupee value decline and its impacts. There is no sign of recovering in the near future. The major spoilers are India’s Oil imports and Gold imports. However, these are not the direct influencing factors, India’s economy itself shrinking to the lowest level not seen in the last four years. India has reported lowest GDP growth of 4.4% which lowest in the past four years. This resulted in the outflow of foreign investors caused huge damage to the rupee. Govt. and RBI is taking several measures to curb the rupee fall, but nothing will work out because the fundamentals of Indian economy is very weak and any steps taken by the govt. would be only for the short run. Food Security Bill is another biggest spoiler for India’s raising fiscal deficit.

Also read :

Recommended Books on Currency and Economy

(These books are recommended based on this blog author’s reading and good review taken from other websites. I would suggest these books if you want to get in depth knowledge on these subjects.)

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  1. Tarang says

    What can, if he/ she can do to contribute n help in appreciation of Indian rupee value. I believe every single person if gets determined to improve the economy of our country n has a guide to do so, then no one can stop India.

    • says

      HI Tarang,

      It is good to see your positve attitude. But, it is not always possible for the individual. Policy makers are the most powerful in a country. If they are not managing our money, then how to see the growth. You can see India as one company and it is run by bad guys who loot money. We are working hard and paying the taxes for country, where it all goes.


  2. says

    As of today, 17/05/2012, the US dollar, is around 55/INR in grey market,
    This is even expected, to go higher, We as Indians can do nothing, as our government is no more interested in saving and working for the growth of our country, Our fiscal deficit is near around 20 % of our GDP, and will even increase, Within a horizon of 15-20 , years, it is not a big thing to say that we would be salves to China or US, not political but economical salves.
    Greece was bailed out by China, as it wanted to even further penetrate in European Markets, But in case of India, no body would come forward to bail us out, as we are already a importing economy , We only export services, that too, will be taken from our hands, by other growing economies like Philippines, So at the end, we would have nothing to have to get the foreign currency, and see out economy sinking.

    • says

      You are correct!! We are sinking. The fall in Rupee clearly shows that our export is decreasing and imports are very higher. This will lead to a collapse in our economy. China is biggest threat for Indian in future.


      • rajeev says

        Dear Mr Krishne,

        Can’t our regulatory authorities stop importing articles who are not very essential to lower down the imports??



        • says

          Hello Rajeev,

          Yes. They have increased import duties for Gold to stop the imports. But, they can not increase it for the essential goods, it will result in high inflation.


          • says

            Yes. You must be correct. But, it is not simple as you think. In fact, we are not manufacturing anything in India. Most of the raw materials are imported. we have to encourage companies to setup manufacturing units in India.


    • rajeev says

      Dear Sir,
      Since i do not know ABC…of economics but by my simple intellect i would suggest minimum use of foreign goods by our citizens could help us to make Rs stronger in coming days.

  3. Vidyasagar says

    Great article! You have explained in the simplest of terms the plight India is getting into. High time that our Government shifts focus from the services sector and invests into R&D and developing of products, else we will be outrun by China and Phillipines in a time shorter than we expect. Interestingly, China has over the years developed its competence on both product and services sector and India somehow got carried away by the service sector boom. Time we settle down, else we will be settled down !

    • says

      We are wasted the past 10 years. It is the golden period for development happened in many countries. We just focused in IT services growth and govt. forget the agriculture needs.


  4. Amit says

    I think government needs to take stringent actions to control the situation. Media should keep highlighting the issues w.r.t Rupee value instead of publishing the news of Pranab Mukharjee missing from the group photos.
    Individual contribution is not required in such Macro Economic Issue, Control the way corruption is flooding & make India grow.

    • says

      The control must be given to the Instituitions handling it like RBI, Planning Comitte to carryout their plans. They are more knowledgable. What happening is political intervention restrict them to take any strict measures.


      • panduranga r says

        sir i am panduranga i am graduate in economics i have more doubts in my loving subject my first doubt is how banks are paying SLR,CRR and repo rate, are they paying monthly or yearly and is bank rate necessary to pay every bank to RBI

  5. Sammer says

    Dear Sir,

    Kya reason hai ki indian rupeees girti jaarahi hai ek waqt tha ki hamari currency mazboot thi agar yeah crisis hai tho india ke leya hi hai phir dusre mulk ke leya kyu nahi hai jaise Nepal, Pakistan, Bangladesh & Srilanka jinki currency value jo kaal tha wohi aaj hai.

    Please clarify

    • Ritesh Dubey says

      Hi Sammer,

      Think it like dead scrips of stock market. There are some stocks whose prices do not show high volatility with respect to movement in the index. So, even if the stock market goes upto 18000 or 20,000 the price of the stock will see a moderate increase of 10 paise or 20 paise and vice versa. This is because their volume of the demand of such stocks in inelastic (i.e. does not changes with changes in price of stock). Now, consider yourself a global investor with $ 1 mn, would you like to invest in countries like Nepal, Bangladesh, Pakistan, Sri Lanka over India. I am assuming you chose no. And, the answer would be no, even if you have $ 10mn to invest. Therefore, the demand of such currencies (Pak, Bangla, Nepal) does not increases or decreases drastically, vis a vis the $ money you have for investment. Therefore, the supply of dollar (or ability to buy the currency) does not have direct impact on such currencies. Hence, they do not see high volatility in their currencies.

  6. Vijay says

    We should make us doller as our currency or we should decrease the import rate . Think that ,what will happen if all petrol pumps of whole India are close for 1 month?

  7. Peeyush says

    Hey Krishna,

    I do not know whether you are any Economist or graduate from any IIM…. but hats off to your Knowledge ….I Read around 6-7 Article from your side on Sovereign Debt Problem, Rupee Value, GDP etc. and i just loved them, Described so Easily so that naive People Like ‘Me’ can also understand…. :-)

    Thank you for this and keep posting ………

    • says

      HI Manoj,

      Every company and country will have the reserve of foreign currency (here it is dollar because it is global currency) to trade with the other countries. That means, if you have rupee, you can sell it and buy the dollars. It is like in the stock market, selling the shares. It creates the less demand for that shares and value decreasing. In the same way, when lot of people sell the dollars, the respective currency demand will be increased and value will also be increased.


      • zubaer says

        sir plz elaborate why we compare indian money with doller only. withdrawing out money from market is the reason for price fall and inflation. please explain it in easy way.

        • says

          Hello Zubaer,

          Dollar is the most widely used currency in the world. If our value against Dollar foes down, then we have to pay more for importing goods. Take an example, today you could buy Sony Camera for Rs. 14000 which is imported from another country. At the time of purchase Dollar value is Rs. 55. After one month it decreased to Rs. 60 then the same camera you have to pay more from our currency to import.


  8. Ritesh Sinha says

    Sir, Japan, china ke currency policy aur USA ki currency policy ka unke economical strategy par kya Asar hai…

  9. Sarvesh says

    Please Stop the products importing from china..
    Just see in market 99% of electronic goods are from china, now even bags,cloths,
    home products we can say that 70% of indians are using “made in china”..
    We are improving china economy rather then our’s.

    • says

      Hello Sarvesh,

      You are correct. We are lot depend on china for the electronic goods. China is slowly dominating the Indian market by giving loans to the Indian companies. It is one of the dangerous move by China.


  10. Manav says

    Foreign Funds Outflow. hey i was not able to understand this point….why does the crisis in europe leads to investers pulling out money from indian market??

      • Koshychayan says

        Great article!
        We can solve this crisis by many ways,
        they are
        1)Promote Indian goods instead of buying foreign goods.
        2)Decrease the imported goods
        3)High production capability to enhance the export.
        4)Invest NRI money in indian banks.
        5)Decrease the arms budget.
        6)Improve our technology instead of depending others.
        7)RBI must increase the gold and dollar collection.

        • says

          Hello Koshychayan,

          Your points are correct. To achieve that we have to change our policies. Again we have to pint our fingers to the policy makers.


          • harish says

            sir i highly appreciate ur knowledge on economic issues ..we are into imprt of very cheap footwear from past 7 years but now a days it seems that no one is buying even a single pair ..our clientage is the lower class and middle class people why the domestic market in india is soooo sooooo slow now ????it feels some times that all the businesses will shut down in india if this thing continues as almost 4 months now with this much slow down

          • panduranga r says

            sir i need your contact because i want be a genius in economics as you please get me to your contact

  11. says

    Hello Harish,

    Yea. The slow down bad for the Indian economy. We have to put our hope on the future of India. There will be some changes to make us happy. We will wait for the time.


  12. Vit95m says

    I just had a doubt in my mind – well if the US Economy is also undergoing a short-term like crisis, then why is it safe to invest in the US Dollar, as mentioned above in the article? I mean isn’t the Dollar also loosing its grip against other currencies today?

    • says

      Hello Vit95,

      Your points are valid. The real issue the currencies which are considered as threat for DOLLAR also very weak. Think about the Euro, Euro zone itself suffering from the bankrupt of countries like Greece, Spain, etc. So, their currency is going down.

      Gold also already in top and it can not replace the dollar. Another alternative is Yuan of China, they are more depend on exports, so will not allow their currency to be increased in value.

      Finally, because every one in problem, DOLLAR is gaining. One more thing, In India, the case is totally different. We are going through a economy collapse and soon we will face lot of problems. In the last meeting our govt. has told hat economy growth is 5.34%. The fact is it is -3% (negative). Our govt. started hiding the fact.

      Something terribly going wrong!!!


      • Vit95m says

        Well thanks a lot sir! It helped! Hope our economy booms back to achieve its target destination of a “SUPERPOWER” country in the years to come!

  13. ET1967 says

    During my recent visit to India, I was surprised to see that banks were going out of their way to get me to invest my dollars with them. I was given huge numbers (in crores) as the money deposited by NRIs in fixed deposits in India in the last weeks. That got me thinking about the whole NRI situation.

    I think NRIs have been partially responsible in worsening the economic situation in India. Most NRIs make long-term investments in India, purely going by their emotional connection with India or by following their “one-cow-follows-the-others instinct”, thus making the economy look good in short-term. When there is a large in-flow of dollar to India in situations like this, it is hiding the real issue with economy. The real investors pull their money out after the short-term gain. The emotional investors (NRIs) are stuck with their long-term investments in a failing economy.

    My conclusion – If NRIs want to help Indian economy, stop pumping money into India without thinking about the underlying economy. There is a basic issue with India economy – lack of accountability and lack of openness. Bad financial planning and administration combined with corruption and malpractices has got us here. Those issues must be fixed to fix the economy. Without seeing solid steps to fix them, a wise NRI should restrict pumping money into the Indian economy.

    • says

      Hello ET1967,

      I could not agree with your opinion. Pumping money by NRI into India is good for the Indian economy. If you are an India and want to stay here in India, then obviously every one wants to send their money back to India for buying some investments here or send the money to parents. I am not seeing point by keeping your money abroad and helping the Indian economy.

      The issue with the economy is because of the policy makes who are not taken any interest on the economy and that too for the current political environment. It will be changed and the better situation would come.


      • ET1967 says

        I don’t see an issue with NRIs sending money to their parents or short-term investments that are closely monitored. But, generally NRIs have a tendency to send all their surplus money to India for sense-less long-term investments (buying up properties, fixed-deposits in banks etc.). In my mind, it is manipulating the market in India and encouraging inflation.

        Banks (and broadly the Indian govt) seem to be eager to take the NRI deposits, but do not seem to have a clear strategy for channeling the NRI money for strategic investments that will help the economy.

        • says

          Hi ET1967,

          One point i strongly agree with you is Indian banks and govt. give more importance to the NRI remittance like there is no money in India. I would encourage them putting taxes for the NRI amount and foreign investments. But, instead govt. is putting lot of burdens to the citizens.

          Coming to the point for all NRI sending money to India, it is sentimental. They feel that they are sending money to their home. Take an example, a person planned to work in abroad for 5 or 10 years, then he is definitely coming to settle in India. So, before coming to India they want to accumulate their wealth to run a peaceful life.

          Yes, it could manipulate the market, that is part of Economy. That is the job of each govt. and reserve banks to work on. :)


  14. Elite says

    Hello Krishnas,

    I’m so enlightened by your posts. But, after reading all this, I’m now only afraid we (India) are in a very difficult situation. I’m not good in understanding economic jargon but I can only see there are certain important things that is causing our country face many problems. Population, Corruption, Reservation System, lack of political seriousness are some among them. When we able to fix these things., I believe Every thing in India Changes. And more of all., We Indians must change! These are just my views and any Corrections are welcomed. Thanks.

    • says

      Hello Elite,

      Thank you for reading my blog.
      Yes. We have the reason to afraid. One of the leading rating agency has told that, if Indian politicians are doing the same corruption, after 15 years Indian govt. will bankrupt and there won’t be any money for the govt. spending.

      My personal opinion is that, India is running without a leader. Last week there is hot statement from NarayanaMurthy and Premji about the same opinion:

      We have lot of things to change. Simply we have wasted the last 10 years which is golden years of development.

      We have to create awareness among the people about our leaders and economic situation. I don’t want to take this interaction into more political, so don’t want to point anyone for the problems.

      If you find it useful, share with your friends and create the awareness. Soon I will be writing another article about the India’s deficit problem which gets increased every year.


  15. Boski says

    Today, I have gone through the newspaper & found that the sensex increased by 135 & thus the analyst says that it will affect in the growth of the economy.
    My query is that when India is facing such a major crisis & investors are taking out their money then how these companies are making profit & how they will in future can stimulate the rupee devaluation.

  16. Boski says

    I have one more query –
    I read an article & there it was written – Rupee devaluation potentially become a big problem because a lot of Indian companies borrowed in foreign currency to take advantage of the low interest rates, but didn’t sufficiently hedge to protect themselves against the adverse exchange rate movement that could take place.
    What kind of low interest Indian companies get by borrowing foreign currency?

  17. ashfaq says

    Article was higly informative…it give insight into the economic senario … In my view all we need is change… The youth should come forward for nation building….

  18. ADESH says

    dear all ,

    Government policies r totally different, they think only what they r.
    they dnt knw about the realties of common people.they leave everything upon future & luck.
    they dnt knw what is abjectly reason behind this depreciation,they knw how to make fool(which they r dng).they dng only experiment, if any 1 knw abt this phenomenon definitely the cost of rupees increases.
    bs chinta kro, & hai toba machate rho….this is indian philosphy..
    sb abne aap hi samajh jayenge….ki hme kuch ni aata.

    v r a developing country but only papers not in actual.
    i love india but i hate politician.

      • mukesh says

        hello krishna sir,

        how the depereciation of rupee can control??
        n how the value of rupee will increase??

      • ADESH says

        hi… krishna….

        right now, it’s 57.15, & also going up.

        and also tell me, what r the most common factor, which does affect the value of rupee.

        • says

          In simple words, we are selling more INR and buying more USD. This happens when we are importing more than the exports. Also when foreign investors pulling out the mony from our market.


      • Adesh says

        Dear Krishna sir,

        It’s now hit the 60, which economy sector will be most unaffected by this depreciation.

  19. CA Sonu Bhojwani says

    Hi Krishna,
    Very interesting post, out of the above one more reason which i feel are Cross Broader Transactions, For Eg – Like Japan based MNC having subsidiary in India wants to make payment of $ 2 lakh to US co. he ordered his Indian subsidiary to make payment to US co. becoz the Transaction will be more costlier if the payment was made in Japaneses currency. Even though $ is costlier at Rs 57/- but still benefiting the group as a whole.
    And u correctly stated something fishy is cooking inside thats why Indian inc had kept total of Rs 79k bank balance collectively as on Mar 31, 2012 (As per TOI June 25,2012).
    Lets see….

      • MrSarkar says

        Hello Krishnas,

        Hats off to you for such informative posts to help laymen like us understand these economic factors. I have very little idea about Economics but I still understood a few things.

        I have a simple question: Is there any chance that the rupee value against dollar will increase in the near future, say by the end of 2012? Dollar value today is 57INR! Damn!


        • says

          Hello Sarkar,

          There is very little hope for the increase. The fundamental of economics in India is very weak because of lot of corruption. In my opinion, the worst is yet to come.


  20. Vit95m says

    Hello Krishna Sir,

    I had another question which is specific to the ‘diamond industry’ being affected by the recent depreciation of the rupee. I wanted to know how the local firms that buy imported raw materials and face elastic demand curve,be at a disadvantage due to the falling rupee. It would also be helpful if you could shed light upon the ELASTICITY APPROACH towards products affected by depreciation, on a general note.

    THANKS! :)

      • Vitraag says

        Hello Krishna sir,
        I had a doubt regarding the CURRENT ACCOUNT DEFICIT point that you have mentioned. Technically speaking, due to depreciation, imports become more EXPENSIVE and exports become more COMPETITIVE, thereby boosting the export market of the country.This consequently helps to bolster the local production as people switch to consuming local products. Thus, with the INCREASE in exports (i.e the inflow of foreign currency and foreign reserves) and DECREASE in imports, doesn’t our rupee strengthen rather than fall, thereby preventing a Balance of Payments deficit?

  21. sabita Pradhan says

    As it has been seen that the our PM itself is PSD in Economics but then also he is unable to control inflaton & because of this the price of everything is going high everyday which leads to reduction in foriengn Direct Investment.
    And finanlly all these factor has to faced by the Middle income holder and BPL Category.

  22. Baskaran says

    I am living in Middle East. What I found here is that the salary of taxi driver is higher than the salary of 8 years experience engineer in India (say 80000 INR pm). I agree that the cost of living is higher than India. But, still people save more money than in India, live a comfortable life and send money back to India. Even a servant is not willing to return back to India and he is happy here. On the other hand, population is high in India which still increases poverty level. India need to reduce the population as there is no point in increasing beggars in streets.
    Analyzing both situations,why don’t the government itself encourages interested people to vacate to Middle East and other countries. This will reduce the population, the NRIs will live happier life and we can also get foreign currency back to India.
    Instead of exporting goods, let us export manpower.

    • says

      Hello Baskaran,

      It will not work out in that way. Why not we can live a better life here?
      Lets solve the problem here. Your idea is like escaping from the problem, and letting people suffer who can not go abroad.


      • Vit95m says

        Hello Krishna sir,
        I had a doubt regarding the CURRENT ACCOUNT DEFICIT point that you have mentioned. Technically speaking, due to depreciation, imports become more EXPENSIVE and exports become more COMPETITIVE, thereby boosting the export market of the country.This consequently helps to bolster the local production as people switch to consuming local products. Thus, with the INCREASE in exports (i.e the inflow of foreign currency and foreign reserves) and DECREASE in imports, doesn’t our rupee strengthen rather than fall, thereby preventing a Balance of Payments deficit?

        • says

          Hello Vit95m,

          Your point is correct. But, rupee will strengthen if the exports are increased. India’s rupee value is decreased because of our economic is weak, that means we are nor producing for the exports and for our consumption also we started depends more from outside.


  23. Kamlesh says

    Hello Krishna,

    Good article.

    I think the real issue with rupee depreciation is lack of economical reforms and political will to do so.Any improvement on this front is distant dream as govt is looking for 2014 elections.To improve economy it has to focus on long term reforms like FDI in retail,de subsidisation of diesel prices, Pension reforms, FDI in insurance, removing subsidies on urea etc.and to deal with current account deficit. But these steps will not be supported by their allies and also by common man.Instead of that govt will continue to look for give aways like farm wave loan or unproductive schemes like NREGA.FIIs are definitely loosing confidence along with domestic players because of this govt attitude.

    Lets hope for the Next good govt in 2014 with majority of votes for political and economic reforms as they both go hand in hand.

  24. peeyush says

    INR is dpreciated because of appreciation of USD & actually india does not have the symtem that can take the indian economy out of this situation.

  25. says

    i want to know clearly about rupee value deprectation could you tell me very clearly with words which a comman man can understand about the situtation

  26. EE says

    Hi Krishna Sir
    You have really explained this very well! Now it is easy to understand various topics and think about the current problems that Bharat is facing… Great work Sir! Thanks a ton!

    • says

      hello krishna sir
      i think using item of our country and consuming less fuel & other imported articals, this type of issue also need like IAC, on imported items if govt hike price i.e fuel etc i think it is good.

  27. priya says

    a very helpful article for me…….thank u sir,thank u very much.i m looking forward to ur next article abt current economic topic.

  28. Anna Catherine says


    I would like to thank you for your initiatives in making these concepts simpler and more understandable. The article was clear and comprehensible.

  29. Rahul says

    Hello Krishna,

    Very nice article indeed. It really covers all the aspects of value depreciation. There are some short term measures RBI can take to decrease the cash flow in our economy- Like increasing interest rates, NRI investments (already talked bout earlier), increasing the statutory liquidity ratio- they can bring in the indian private banking players too in addition to the PS banks we already have.

    In long term how ever we need to boost the R&D and manufacturing sector. Indian manufacturing sector has been in shambles for a long time and no one really bothered to give it a boost. Its time government starts investing in these sectors. For every military technology or civil contracts these days the contract is taken by foreign vendors.

    • says

      HI Rahul,

      Yes. Improving the productivity inside our country and increasing the export is the long term solution for strengthening our currency.

      RBS has very less scope in controlling the rupee value, only by changing interest rates it is not easy to hold the value for long time.


      • Rahul says

        Yes Krishna,

        I agree that the scope is very less but given the fact we are in the damage control mode- it should help ride out the fallout for the time being.

        • says

          Yes. But, without good support from the policy makers, it is very difficult for the RBI to control anything. Have you ever seen this kind of fuel price hike in India?. How small industries and business can make profit if they increase all the prices?

          First of all there should be a freedom for RBI and Planning Commission to implement their plans.


  30. Siva Kumar says

    This article is great and written in simple terms for the common man whio likes to understand the rupee fluctuations and the associated factors. Well esplained and easy to acquire.

    The comments and the explanations given by Krishna was good and I got many points in my ming after going through all the comments.

    And Well, its the high time for our country to come over this hurdle. We have so many incredible mind in all sectors. But all are those exploited and under kept by the domination of poor political administration. This has to be changed. I hope there should be a change and our economy should stand front among superpowers.

  31. Dilli says

    oh God!! please let every Indian citizen to think in buying the Indian Products. If not in Electronics, but at least in Daily Consumables like Tooth paste, after shave, hair-oil etc. that we use on a daily basis.
    Krishna, this will solve at least half or quarter of the problems with rupee depreciation. Right?

    • says

      Hello Dilli,

      That is correct! But, it is not practical. Goods imported are in high quality compared to our Indian products. People will choose the better product. To solve only problem is, encourage the manufacturing sector in India to product all the goods in India. At present, we are focusing only on service sector, we have reached a peak but not improving the manufacturing sector that is why China is dominating the world now.

      If you note, if we could balance the export and import with good economist, no one can not compete India. If you look at China, they are more depend on Exports, if any slow down that will impact China’s economy lot. We have to increase the local manufacturing and local consumption.


    • says

      HI Geetha,

      To understand that, you need to read history around second world war. We need a global currency to have a easy trade among other countries. At the time of second world war, gold is considered as the global or common currency. But, the amount of physical gold available was not sufficient to meet the GDP of all the countries. Since, USA is biggest economy in the world, their currency is nominated as the common currency for every one. But, popularity of dollar is going down because of raise in the other countries like Europe and China.

      There is no compulsion that you should trade in dollar, for example, nowadays china is directly making agreement with other countries to trade in their own currencies. It is one of their plan to weaken the dollar.


  32. says

    I think Black Money deposited outside country should be return back to India to get relief on this currency war, as well foreign bank playing within India should be strictly regulated under RBI to control the black economy.

  33. swati says

    sir plesae explain me that how can FPI help the Indian economy and which one is most suitable FDI or FPI….

  34. Baskaran says

    Mr. Krishna,

    Excellent replies.

    As of now, 1 USD = 60 INR.

    “Our imports are increasing than exports”. This statement is generic and I want to delve deeper in terms of facts and figures.
    Can you please explain or provide a weblink or study material to understand the exports and imports history (facts & figures) of india?
    What are the logical ways to predict depreciation and appreciation of INR?
    Can you please explain other factors gradually (as article)for rupee value depreciation?

    R. Baskaran

  35. Vijay P. Sharma says

    As a layman, what I understand about the economics is ‘Money preserves labour/output”. Most of us are investing our hard earned money in non productive tools like real state. Govt is also spending heavily on providing undue subsidies and passing bills to lure vote banks etc. The undue returns in real state or any such tool which I do not consider as a business in true sense, will definitely attract any investor. People will not spent money on the products which have direct labour input and try to save as much as they can to invest in unproductive tools. The policies of the Govt should be such as to discourage such investments so as allow fast circulation of money and invite people to engage in productive activity. The undue dead investment in unproductive sectors which forms a major chunk of economic activity in our country is , I feel, the basic reason for devaluation of Rupee.

  36. sirisha says

    as i has been seen ur blog am fully understand rather than which i have seen another blogs. thanku so much for making me understandable which is very easy way.


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