The price of crude oil is not fast, the reason for falling rupee against the dollar
Dr. Ashwini Mahajan, There was a huge devaluation in rupees for the last few months. Where the exchange rate was approximately 64 rupees in April 2018 and on 11th October 2018, it reached 74.48 rupees per dollar. But in the last few days, the rupee has climbed to $ 69.77 per dollar till December 1. On the one hand, there was an atmosphere of concern in the country due to the weak rupee, many of the great leaders associated with policymaking were heard to say that falling rupee is natural because it is already stronger than ever. He also had to say that the country is being strongly damaged in the rupee because it affects our exports. These experts, who advocated for weakening the rupee, saying the RS was more robust, had different opinions. The Deputy Commissioners of the Policy Commission were saying in July that the rupee was five to seven percent more valuable and many experts were also saying that it is 15 percent more valuable and in some other reports it was said to be 10 percent more valuable.
The rupee dropped for temporary reasons
There have been several reasons for rupee weakness in the past six months. The first reason was that the prices of crude oil in the international market were growing rapidly. Significantly, India imports about 70 percent of its petroleum needs from foreign countries. If Iran is left out, the crude oil is paid in dollars from all the other countries, whereas international prices of crude oil in October 2017 were only $ 60 a barrel, it reached $ 86 a barrel in October 2018 was. This led to the increase in our oil bill and for this reason the dollar demand too. Another major reason for the rupee weakness was that foreign institutional investors started moving their investments from India. Because of this, the demand for dollar in the country has also increased. The third reason for the rupee weakness is said to be that America has reduced the company and personal income tax significantly, which led to global investor getting attracted towards the US. On the other hand, the US Federal Reserve (US central bank) increased interest rates and also caused global investors to be attracted to the US.
Not always the price of rising crude oil
As far as the international market crude oil prices are concerned, it does not always grow. Increase in crude oil prices usually increases due to OPEC countries’ limited supply. But after the supply increases in the international markets, oil prices fall again. Due to the increasing supply of crude oil in international markets, there may be a further reduction in its cost. Declining one dollar per barrel in the price of oil can reduce our annual oil bill by $ 1.5 billion.
Second major reason
Another major reason for the rupee weakness was that international investors were taking foreign currency out of India. This order has also stopped and he has again turned to India. The rise in the stock market has been indicative of this over the past days. Thus, once again the decreasing prices of crude oil and on the other hand, the attractiveness of foreign investors towards India is naturally reducing the demand for the dollar and the rupee has started becoming stronger in nature.
Reserve Bank of India
The disappointing thing is that when the rupee was getting weak due to temporary reasons because the Reserve Bank of India did not discharge responsibility for temporarily controlling the devaluation. Even more unfortunate that the greatness of policy-making was advocating to weaken the rupee further. While it was clear that this weakness in the rupee is not due to fundamental reasons in the Indian economy, but due to temporary reasons such as rising crude oil prices and foreign investors. It is well known that the rate of GDP growth is increasing in the country, the inflation rate is continuously declining, due to various policy reforms, ‘Is Doing Business’ is improving in the country, and agriculture and industrial production is continuously increasing. In such circumstances, the Deputy Chairman of the Policy Commission, the Secretary of the Economic Affairs of the country and the former Chief Economic Advisor of the country were advocating weakening the rupee on the basis of insignificance. The strength of rupee in the last days proved their determination to be ineffective.
Scope of improvement
Due to the WTO agreements in the last decades, the import of our country continued to grow and our trade deficit and balance of payments balance continued to increase due to the non-expected increase in exports. Due to this the supply of the dollar has decreased and demand is more. The reality is that due to the urgent need of the policymakers for globalization, import tariffs were levied from one quarter to half of the amount, as per the WTO agreements, which India could have imposed. Due to this our industry’s businesses started to be destroyed and our dependence increased on imports. That is why it is necessary that we minimize our imports so as to prevent unnecessary weakness in rupees. According to a rough estimate, the weakness of only one rupee against the dollar also raises the country’s import bill by 12 thousand crores. That is why the government will have to take steps to strengthen the rupee by increasing import tariffs. Reserve Bank’s intervention is equally important for temporary fluctuations in the exchange rate.
l am Rananjay Parmar and l work with Credence Research Limited is a marketing consulting and research Agency that is focused on the United States market and the United Kingdom. We are specialized in primary data collection and offer our clients relevant information and advice through the help of adequate research analysis and conclusions.