Thursday, 24 May 2012

Rupee Devaluation & Its Impact on money Transfer


Value of Indian rupee has been undergoing frequent devaluations. Yesterday, it hit the mark of 56, a record low against the US currency. A series of devaluation within a quicker time span has left the economy more unsettling. A heavily negative impact on the domestic front is inevitable. Devaluation will further add fuel to fuming inflation. Continuous price hike is already suffocating for the poor and middle class and it will continue to do so but in greater measure.  India is import intensive and currency devaluation will inflict greater effect on trade balance.  

Being an open economy, India has been engaged in international trade for a long period of time. Decline in the exchange rate against dollars means suffering the same fate against the currencies of developed nations. When rupee is devalued, trade balance is hit worse. In Indian context, the exchange rate declining will take India towards adoption of a different approach commonly referred to as ‘Asian growth model’.  India should follow the trade strategy of China and South Korea. These countries have high savings and investment rate. Furthermore, low exchange rate has helped these countries to boost up their export figure. 

For the common people, exchange rate decline has another implication. Those who need to send Money2India from the USA, now have to transfer less money because dollar has gone up in value as compared to rupee. This will lead to more saving for the NRIs. On the opposite end, the scenario is quite disturbing. It is because the Indians need to transfer more money to America, thereby being almost forced to bear the brunt of constant rupee devaluation.

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