Why Indian Rupee is falling against Dollar - Some simple explanation
Around 1970s, When I was about 14 or 15 years old, 1 dollar was equivalent to about 7 Indian Rupees! I vaguely remember that India took a bold decision to devalue the Indian Rupee sometime during that period that made Indian Rupee to fall from approximately 5 Rupees per dollar to 7 Rupees a dollar! And the Finance Minister and Prime minister got so much flack from every quarters for that disastrous move!
When I went to USA sometime in 1988 or so, I remember one dollar was equivalent to some 17 Rupees. I was immediately comparing my childhood days and wondered how over almost 15 years period the Rupee can get eroded so much.
It now really looks ludicrous that the current exchange rate is about 65 Rupees a dollar!
What does it really mean? In fact, the economic status of USA is not too great; Indian economy too is also in almost similar state. Then in what way US dollar deserves a better value?
As a non-economist common man I could only see one obvious reason for this. Our imports are too heavy when compared to our exports.
While we are seeing "progress" of all sorts in India over the recent years, the progress has really been in the evil effect of globalization -- i.e. all products, gadgets and items of hi-tech are freely available in India -- almost as instantaneously as they are produced in the developed countries. It only means bulk of these items are imported, spending foreign currency (dollars).
Past and present
- In olden days, there were too many bottlenecks for imports. Government policy restrictions did not allow easy imports; There was overt Government protection for local manufacturers (however outdated their technology may be); import duties were extremely high (that would make the landed cost of the foreign goods too dear).
In today's globalized economy, there are virtually no governmental restrictions for import, import (customs) duties are very less (almost comparable with excise duty) and local industry is not protected.
- In olden days Imports from China were highly restricted. Thus flooding of market by Chinese made low cost products was not simply possible. That's no so today.
- We now find so much of fruits and many packaged food preparations being allowed to be imported and distributed freely through super markets. Such were impossible in olden days.
- We were blessed with bad roads all over the country in those days! We didn't have 4-lane high ways. Except for Ambassador and Fiat, there were no other car manufacturers. Cars were indeed luxury items. Taxes and duties on Automobiles were indeed very high. Naturally only rich people could afford to go by car; which meant a far less road traffic. Even two wheelers were products for upper middle class! You have to wait for a couple of years to get a Lambretta scooter after booking!
All the above only meant that interstate road traffic was predominantly for goods transport and marginally for public transport. Privately owned cars, scooters etc were only a small percentage of the population. But today, a car is something to be owned right from a lower-middle class person and there are different classes of cars for different status of people. The population of cars is turning to be a nightmare more serious than the human population explosion of India!
Naturally, the demand for petroleum products has grown several times more than the population growth. Petroleum import is by far the major chuck of our imports bill and it is the de facto villain of the current foreign exchange fiasco.
- Another massive drainer of foreign exchange today must be the cell phones. Next would be computers. These were non-existent at mass level consumption 3-4 decades ago.
What Should have happened by globalization has not happened in India
With globalization, opening up of the economy, easy import of raw materials and advanced technological systems, easy global transport, easy opportunities for educational advancement through studying in overseas Universities -- all these should have given a great boost to local Industries to upgrade themselves, to do in-house research, to strive for global level of quality standards and expand export markets in a massive way. It should have happened through friendly and proactive government policies, encouragement, entrepreneurship, self-effort, national pride and so on. It should have happened at a rate which would outsmart the inflow of imports.
But it has not happened! Somewhere something is essentially wrong in our culture, economic vision, political will etc. As a nation, we are still over awed by imported products, foreign technology and foreign culture; we are too glad to be massive consumers rather than great exporters.
All great global powers are smart enough to grasp this basic Indian weakness and through international treaties and agreements, they keep twisting the arms of Government of India to loosen the governmental restrictions to allow free imports of all needed and unneeded products. India is flooded with foreign goods more and more for mass consumption.
Shamelessly we consume and force the Government to spend in dollars. The Government has no will, vision or strategy to close the floodgates.
And the rupee keeps falling. We Indian shamelessly fall at the feet of the west.