The lowest record of the rupee on May 9, 2022, was Rs 77.05 against one dollar as inflation has broken through walls to incomparable levels.
In fact, the rupee closed at 77.05 per dollar and on Tuesday recovered slightly at Rs 77.23 per dollar. Reasons for this dangerous low are analyzed to be due to the US fed rate hike and the spiraling inflation in India due to fuel hikes.
Reasons for the Rupee Drop
There are deep concerns about the fall of the rupee due to a myriad of reasons, the rising crude oil prices due to the war, uncontrollable trade deficits where imports exceed exports meaning money is flowing out of India rather than into India, and fall in tourism signify drop in the money entering India, equity outflow, fund outflow from the Indian market, factories closing down signifying fewer goods bought among a dozen other reasons.
Economists also state that the rising treasury products in the US are one of the major reasons for this as the value of the dollar is also rising owing to the rate hike by the Federal Reserve and it is anticipated to go up higher in the forthcoming days.
Royce Vargheese Joseph – Research Analyst – Currency and Energy, Anand Rathi Shares and Stock Brokers, noted the stronger position of the dollar, sharp sell off in equity markets and elevated crude prices, and rising domestic inflation as reasons behind the drop of the Indian Rupee, according to a PTI report.
Thus, the value of the rupee is declining due to massive selling by foreign investors. For the seventh month, they have been the next sellers in the Indian markets. This has pulled the markets down.
Increasing trade deficit where India’s imports exceed the value of its exports—India is buying more goods and services than it is selling. Many companies have shut down. In fact, 2,783 foreign companies shut down Indian operations since 2014 given in a report in the Parliament.
The war in Ukraine and Russia hitting the global economy has hurt India too. The war has resulted in disrupting India’s edible oil market as the country imports more than 90% of its sunflower oil from Russia and Ukraine combined. The rise in crude oil prices is causing inflation.
COVID in China with its lockdown has led to difficulty for a lot of companies in India dealing directly with China as China has the maximum forex in the whole world where its forex reserves are larger than India’s GDP. With China’s zero-COVID policy, the major cities of the country are under strict lockdown.
The rate hike by the RBI, to be done again next month, has also made things more harmful for the markets.
As the rupee falls, the crude oil import bill will rise, which, in turn, will lead to a rise in both petrol and diesel prices. the transportation cost and indirectly lead to an increase in the price of goods. Thus, inflation is likely to go up. Already, the costs of all commodities are soaring.
Meantime, the RBI releases a report that the Indian economy may take 12 years to recoup pandemic losses and the report has estimated the output losses during the pandemic period at around Rs 52 lakh crore. Randeep Surjewala had alleged that the Government of India is doing propaganda” about India being the fastest-growing economy.
One can only hope that India would never reach a stage like Sri Lanka. The open market systems of industrialization saved India over the past 70 years but with that slowing down, things are looking stormy dark in the coming days.