Vikrant Shekhawat : Jan 14, 2025, 09:41 AM
Rupee vs Dollar Decline: The Indian currency market witnessed a big shock on Monday when the rupee closed at a record low of 86.62, falling 58 paise against the dollar. This is the biggest fall recorded in a day in two years. According to currency market data, the rupee opened at 86.12 on Monday and fell to 86.11 during the day's trading. The main reason for this huge decline was the strength of the US dollar and the surge in crude oil prices.Major reasons for the fall of rupee against the dollarIndifference of foreign investors: Foreign investors have withdrawn a huge amount of money from the Indian stock market. So far in January, more than Rs 22,000 crore has been withdrawn, which has increased the pressure on the rupee.Rise in crude oil prices: India imports more than 85% of its crude oil requirement. Rising crude oil prices put pressure on the rupee.Effects of US elections: The dollar index has gained momentum after US President Donald Trump won the election. At present, it has reached the level of 110.Purchase of Gold: There has been an increase in the purchase of gold by central banks around the world in 2024. India also led this list. Since gold is purchased in dollars, the increased demand for dollars put pressure on the rupee.Decline in exports: India's exports saw a decline of more than 5% in November 2024. Due to the decrease in exports, the income of dollars decreases, which weakens the position of the rupee.Status of rupee in the last decadeIf we talk about the last decade, the rupee has continuously weakened against the dollar. In April 2014, the price of one dollar was Rs 60.32, which has now increased to Rs 86.62. During this period, a decline of 43.60% was registered in the rupee.Decline in the last one monthIn the last one month, the rupee has fallen by about 2% against the dollar. Whereas in the last one year, this decline has been more than 4.30%.Impact of rupee depreciation on IndiaThe depreciation of rupee against the dollar not only affects the Indian economy, but also weighs heavily on the pocket of the common man.1. Increase in import billThe depreciation of rupee increases the country's import bill. According to the GTRI report, India's import bill can increase by up to $15 billion due to the depreciation of rupee.2. Increase in crude oil import billIndia imports most of its energy needs. The depreciation of rupee makes crude oil expensive, which increases the country's import bill.3. Rise in petrol-diesel pricesThe cost of production of petrol and diesel increases due to the cost of crude oil. This directly affects the common man, because the cost of transport and other services increases due to the cost of fuel.4. Foreign goods will become expensiveDue to the depreciation of rupee, imported goods like clothes, shoes, watches, and foreign liquor will become expensive. This will affect the purchasing power of consumers.5. Studying abroad will be expensiveStudents studying abroad will now have to spend more rupees for their education. The weakness of the rupee against the dollar will have a direct impact on their tuition fees and living costs.6. Foreign medicines will be expensiveIndia imports many medicines for cancer and other serious diseases from abroad. These medicines will become expensive due to the fall in the rupee.7. Pulses and edible oil will become expensiveIndia imports pulses and edible oil in large quantities. The fall in the rupee will increase the prices of these commodities, which will increase food inflation.8. Decline in foreign exchange reservesThe country's foreign exchange reserves are continuously decreasing. In the week ended January 3, it has come down by $ 5.69 billion to $ 634.58 billion. Forex reserves have been continuously declining in the last five weeks.Experts' opinionAccording to Anuj Gupta, Currency Commodity Head of HDFC Securities, the dollar has strengthened in the US market due to better employment figures and new sanctions on Russia. This has also increased the US bond yield. He said that the dollar-rupee exchange rate could be between 85.50 and 87.50 in 2025.Anuj Chaudhary, Research Analyst at Mirae Asset Sharekhan, said that the rupee has weakened due to risk aversion in the global market and the rise in crude oil prices.Dollar index risesThe dollar index, which measures the strength of the dollar against the world's six major currencies, rose 0.29% to cross the 110 level. It has increased by one and a half percent in the last five trading days, while it has increased by 2.83% in a month and 6.38% in three months. The dollar index has risen by 7.30% in the last one year.ConclusionThe decline in the rupee against the dollar is a matter of concern for India's economy. This will not only make imports expensive, but it will also have a direct impact on the common man. With the increase in inflation, the cost of foreign education, medicines, and essential goods will increase. To deal with this situation, the government will need strong economic policies.