Let’s understand why Indian Rupee is falling down.
₹ is not falling due to one reason. it is falling due to three reasons and all three reasons are happened at the same time.
1. we all know that foreign investors are running from Indian market. investors left India with more than 17 billion dollars. This is the biggest outflow after the covid 19 Crash.
2. the second reason is India's trade deficit is increasing. Less dollars are flowing into India and more dollars are flowing out.
Let's understand with a simple example: - If India is importing $1000 and exporting $700, then $300 is going away from us. This is also increasing the pressure on the Indian Rupee and the Rupee is falling.
3. The third reason is RBI decided not to defend the Rupee. And accept the weaker Rupee. RBI have accepted the IMF's reclassification of the crawling arrangement. RBI believes that defending the Rupee right now will be very expensive. All the reserves will be exhausted, so it would rather have it adjust naturally than crash suddenly.
Now try to understand the timeline
From May-June-July 2025, FIIs are going to left the market, trade deficit is in negative. RBI is like ok we cannot fight in this situation as all three are happening at the same time.
Let's understand whether the RBI did the right thing or wrong.
They had two options.
Option 1: Burn $40 billion and maintain the rupee at $83. But if the FIIs leaving will be a hit again, then even $40 billion will be lost, and the rupee will not be able to be maintained at $83.
Option 2: The RBI will not intervene aggressively. Let the falling rupee benefit at least from our exports.
Now, we actually choose the second option, and whether this option is correct or not will depend on the future. If the FIIs return, it will be the right decision. We will preserve the capital. But if they don't return, we will have to struggle.
How the fall of the Indian Rupee is good for India.
Let's understand how.
We need to understand economics, but we need to understand economics with geopolitics and diplomatic strategy.
The fall of the Rupee is a blessing in disguise. but why did the Rupee fall so much?
India is a country that is currently facing the highest tariffs ever imposed by the USA, yet it is still outperforming many countries in terms of economic growth. So, when America imposed its highest tariffs on India, it meant that Indian goods were artificially made more expensive for consumers in the US by levying taxes. Naturally, US consumers wouldn't buy Indian goods, meaning Indian exporters would earn fewer dollars, resulting in a shortage of dollars in India. When something is scarce, its value increases, and that's why the value of the dollar is rising compared to the Rupee, and the value of the Rupee is falling.
But what is the opportunity in this crisis?
The USA consistently fails to be a trustworthy and reliable partner. Therefore, it is important for our exporters to find new foreign markets. Because when the rupee depreciates, our goods become cheaper for foreign markets. And who doesn't like cheaper goods? So, this decreased rupee value will provide an advantage in entering new foreign markets where they can break established monopolies with their lower prices and carve out a niche for themselves. This will prevent Indian businessmen from being dependent on a few countries for doing business.
And in the current volatile geopolitical scenario, diversification of the market is the only solution for the economy to remain robust.
Yes, there might be some difficulties in the short term, such as inflation, but this is a necessary evil for long-term benefits.
Source : ET, thewire.in, Google
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