Rupee fall and dollar rise: What is its impact on the economy? 1 dollar is equal to 85 rupees
The weakness of the rupee against the dollar has a significant impact on the Indian economy. Oil, raw materials, and other imports become expensive, leading to a trade deficit and inflation. However, sectors such as IT, pharma, and textiles benefit.
INDC Network: Business: Falling rupee and rising dollar
From the story of travel enthusiast Mr. Nomad, I understood how currency rates are fixed. One day, he observed that $1 = ₹83, but the next day it increased to ₹84. This happened because the demand for dollars increased. This is the direct math of the rise and fall of the currency. When the value of the rupee falls against the dollar, it is called a "fall" or "depreciation" of the rupee.
Falling Rupees: Who Loses?
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Oil Imports and Trade Deficit
India depends on 87% of its oil imports. Oil import expenditure was $134 billion in FY24. A stronger dollar increases this bill, which increases the trade deficit. -
Inflationary pressures
India is a net importing country, and a strong dollar makes imports more expensive. As a result, prices of commodities such as raw materials, fertilizers, and gasoline rise, fueling inflation. -
Companies that repay loans in dollars
Companies that have taken loans in dollars have to repay their loans by paying more rupees. India's external debt reached $682 billion in June 2024. A strong dollar further increases the debt burden. -
CURRENCY WARS AND REGIONAL EFFECTS
If the US raises trade tariffs on China, the Chinese currency may weaken. This may affect other Asian markets and India as well.
| Area of influence | Description | result |
|---|---|---|
| Import oil | The cost of imports increases as the dollar becomes more expensive | Trade deficit and inflation increase |
| Debt repayment | Dollar based loans are expensive | Financial stress and difficulty in repaying debts |
| inflation | Expensive imports increase the prices of goods | Economic imbalance |
| Regional currencies | A decline in the Chinese yuan puts pressure on regional currencies | Asian market affected |
Falling Rupees: Who Wins?
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IT and Pharma Sector
Indian IT and Pharma companies earn a major share of their revenue from overseas. As the dollar strengthens, their income increases when converted into rupees. -
Textile Sector
A falling rupee makes Indian textile products cheaper and more competitive in the global market. Due to the "China+1" strategy, India is getting new buyers. -
Exporters
Exporters benefit from a falling rupee, as their products become cheaper and more attractive.
| Area of benefit | Description | result |
|---|---|---|
| IT and Pharma | Higher revenue in rupees than the increase in dollar earnings | Profits of companies increase |
| textile | Falling rupee increases global competition | Increase in new orders and income |
| export | Increase in demand due to cheaper exports | More profit to the exporter |
Falling Rupee: Widespread Impact
US policies are responsible for the rise of the dollar. The Trump administration's economic policies, such as increasing government spending, loosening financial regulations and tax cuts, make the dollar stronger. In addition, an increase in interest rates by the Federal Reserve attracts investors to the dollar.
- Falling rupee and rising dollar is a complicated scenario. This has a massive impact on the Indian economy. While some sectors benefit, importers and borrowers are hit hard.
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