Rama Krishna Sangem
By Dasara that falls on October 5 this year, expect the exchange rate of a US dollar at Rs 82. Currently, Indian rupee is trading at Rs 79.02 per US dollar (as on July 4, Monday). Those of us in India may not have much of difference if rupee value depreciates against US dollar, excepting some prices hike. For example, gold and petroleum will become costlier and so are prices of all imports.
Similarly, those of our NRI living in America may not see any salary hike, but if they want to purchase any real estate in India, they can do it after three months, because, they can buy more for the same money. RBI (Reserve Bank of India) which has been propping up Re for the last two years has almost given up the efforts in view of not so encouraging foreign exchange reserves. Foreign exchange reserves at present are at Rs 595 US billion dollars.
According to reports from financial experts, RBI has spent around 59 US billion dollars in the last few months to keep Re value at Rs 70 -75 per US dollar. Still, we couldn’t keep it at that. For the first time, Re depreciated to Rs 79 per US dollar and soon it will cross, Rs 80 per US dollar, may be by the end of July or first week of August. As RBI will not stop the fall of Re, it will further go down and touch Rs 82 per dollar.
The fall of Re is because of two major factors – first, growing inflation in India, which is now at 7.5 per cent (retail prices), over and above that of RBI prescribed 6 per cent. Second, growing current account deficit, gap between experts bill and imports bill. This has now touched 3.3 per cent of GDP as against 1.2 in 2021. This gap has to be serviced through foreign exchange reserves with RBI.
Moreover, as US Fed, equivalent of our RBI, is increasing its interests rates, so all American investors are buying bonds there, by withdrawing their money from countries like India. This rate hike by US Fed is likely to continue for another year or so. So, more dollars will go out of our economy and our Re will further weaken. But, of course, our RBI will not allow the fall beyond a point. May be at Rs 85 per US dollar, through various other means.
Already, efforts are underway like banning certain exports like wheat, petroleum products and increasing taxes on gold imports etc. These measure are a crude form of controlling inflation, but not a long term solution to the problem. But, Narendra Modi led government is not ready to allow fall of Re beyond a point. Particularly, in view of elections to Gujarat and Himachal Pradesh assemblies later this year.