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Dec 31, 2007

Appreciation of Indian Rupee to hit Global Economy? A Million Dollar Question

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--By P Neelakantha Achary

There is good saying - a million dollar question, probably the usage of the saying might change in near future to - a million rupees question. Certainly, this might happen if more analyses are made on the devaluation of dollar and appreciation of Indian rupees. Within a span of 12 months, the value of dollar has significantly dropped from around 47 to 48 rupees to around 39 rupees. Of late, the value of 1 US dollar is around 39 rupees.

Indian economy is among the fastest growing economies of the world. The appreciation of the rupees against the dollar would be another giant sign towards its economic prosperity and augmentation. However, the economic epidemics like poverty, unemployment etc., could not be dealt in the short-run.

The appreciation of the rupees will help the economy in many ways. There will be positive impact on importers and negative impact on the exporters. Lets evaluate the possible impact of the devaluation of dollar and appreciation of rupees on the export & import in India. The dollar has been the popular medium of foreign exchange for a long time. Most of the payment for the export or import is made through dollar.

The devaluation of the dollar will have a positive impact on the importers, while it will have adverse effect on the exporters. Importers of goods and services will be getting the goods and services by paying less, as they used to pay 47 rupees against one dollar, now they will be paying around 39 to import the same. The exporter will be getting their return in dollar at the cost of 39 rupees per 1 US dollar, whereas they used to get around 47 rupees against one dollar. The difference in the previous and present exchange would have high impact if the volume of exchange is in millions of rupees or dollars.

In the past one year, the dollar has dropped by around 20 per cent against Indian rupees. This reveals that positive or negative impact on volume of export or import would be around 20 per cent, which can not be over looked as the exporters are suffering losses, whereas importer are on gain. However the impact will remain until there is depreciation of dollar against rupees. If it continues, then a great change can be expected on a long run in international trade arena. Another impact would be the fantasy of dollar has been losing ground day by day.

Analyses made it clear that earlier people were fascinate about dollar due to its value against Indian rupees. But the scenario has completely changed. Those, who were planning to move to US for job, now might plan to settle in Britain, as British economy is one of the strongest economies in the world.

The appreciation of the rupees will have a positive impact, whereas in the global economy the Yen, Euro and other currencies would find place in the foreign exchange race. At the international level, the sliding dollar will have huge impact as it is the global player despite all the hiccups. Finally it would worthwhile to say - depreciation of dollar: a million rupees question.


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