It is an interesting ongoing game with the Dollar vs Indian rupee. There was a time when our politician used to make promise about this. "If you vote for us, we will increase rupee's value". "When we will come into power, 40 rupees will be equal to 1 dollar". Nothing sort about that happens. In fact, rupees value kept on getting weaker. To the extent that now, 1 dollar almost touch in to 75 rupees. This is not because of the last few years only. Even since our country got independent, rupees values has been deteriorating continuously. Why did it happen?. And what will happen if 1 dollar become equal to 1 rupees?, come let's try to find out all about it in today educational article. Let's start with the absolute basic. The conversion rate between two currencies is known as exchange rate. There are three type of exchange rate mainly.
1. Fixed exchanged rate
2. Floating exchanged rate
3. Managed exchanged rate
1. What do you means by fixed exchanged rate?
Exchanged rate is being determined by the government, not by the demand and supply forces.
2. What do you means by floating exchange rate?
The system of exchange rate in which the value of a currency is allowed to adjust freely or to floot as determined by demand for the supply of foreign exchange.
3. What do you means by manage exchange rate?
Some country say, that they will allow the fluctuation in the value of their currencies based on the changing supply and demand in the market. But only a limit. They will set a limit that the value of currencies can not fluctuate more than, say, 5-10%. The exchange rate is partially allowed to fluctuate the government does not allow fluctuation, more than 1 to 3 percent. So, in this system, exchange rate is neither fixed nor free. In reality, there are many reasons for the fluctuation in the value of currencies.
-Unemployment Rate
-Inflution Rate
-The GDP of a country
-The manufacturing activities in a country
-The types of product produced in a country
-How is the export and import of the country ?
All of these factors affect the currency exchange rate.
It is interesting to know friends that, most of the countries had fixed exchange rates before the 1970s. Even in India also when our country got in dependency in 1947, then 1 dollar actually equal to 1 rupee's. It was a time when the value of the dollar and rupee get so devalued, after it? Around the 1950s, the government spent a lot on the development of the country. But it did not earn as much. So the government took several loans from other countries. And since the government did not have enough money to repay the loans, the government devalued the rupee. By the time we reach the 1960s and 1970s, there had been several wars. India-Pakistan war, India-China war. Our country had to suffer heavy losses again. He had to take loans from other countries. The country needed foreign investment would come only if there are incentives, such as cheap products, for investing in the country. Because of this, the government changed the exchange rate again. Where in, 1 dollar was around 7 rupees. When a government reduced the values of a currency on its own, for any reason, by increasing the supply, it is known as devaluation. And when the value of a currency falls. Because of external factors. It is known as depreciation. Often people get confused between depreciation and devaluation. They are completely different.
Now, let's discuss what would happen if 1 dollar were equal to 1 rupees now? It can not happen but, let's imagine a hypothetical situation. Firstly, it would have been very easy for you to vacation abroad. Whenever you would have gone to Europe or US for a vacation, you would not have to spend a lot of money. Instead of lakhs of rupees it would have cost you in the thousand even for luxurious vacations. The luxury goods that would have brought from others like an iPhone, iPhone would have cost you only 600 rupees. It would have been cheap to buy an iPhone. And import prices would have been very cheap too. Had you gone abroad for studying, or sent your kids to another country to study, it would have been inexpensive? It is really unfortunate that it is not so today you need to spend a lot of money to study in foreign universities outside India. But fortunately, now there are a few option for studing at a foreign university while remaing at your home in india, and you can complete the entire degree in online. After everything i have told you till now, you might thinking, that our lives be so much better if 1 dollar is eqal to 1 rupee's. Everything would be cheaper. But now comes the reallity check. Friends if 1 rupee's actually does come equal to 1 dollar it would also means that no foreign investment will come to India. Or a negligible amount of foreign investment might come in. Because the foreign companies that went to invest in india, do so because they get cheap labour in india. It is most cheaper to employ people in india as compared to employing people in western countries. So if the companies see that they need to pay 35,000 rupee's to employ an American and they will need to pay the same salary for employing an indian. What will be the incentive to invest in india?. They will employ prople from their own country or will go to another country where they could find cheap worker.
In India, approx 60% of the GDP contribution is from the service sector. And the service sector provides employment to 32% of Indians. And what exactly is the service sector. The foreign companies that have offices in India or have to set up call centers, and employes so many people in the IT sector. It will become very expensive for these companies to maintain their if 1 dollar become equal to 1 rupee's. The salary of the India employers will become too expensive for them to bear. They will shut down their offices. And will leave the country. All the people that are the employed in the IT sector will suddenly be unemployed. This will lead to large-scale unemployement in the country. As well as an economic crisis. Something similar to this happends in the 2008 economic crisis. There was a global recession. Many American companies went under at that time. Because of their bankrupctcy, the IT office that they had in India. They had been closed as well. And the India IT sector suffered a lot.
You must be logged in to post a comment.