When exchange rate rises the value of domestic currency rupee in case of India falls. It is Depreciation of Rupee. It makes imports costly because to import one unit of foreign currency worth of goods and services the domestic purchasers have to pay with more rupees. Since imports become costly imports fall.
Currency exchange rate refers to the value of one currency with respect to another currency i.e., The American Dollar. So, when we talk about currency depreciation in the Indian context, it means that the value of the Indian Rupee has fallen with respect to the US Dollar. This decline in the value of Rupee has an impact on the Indian Economy. When the rupee depreciates, the imports become more expensive. However, currency depreciation gives a boost to the exports of the country because Indian commodities become cheaper for the foreigners. It proves to be fruitful for the IT sector, textile industry and the agriculture industry. Also, when the value of Rupee declines, the imports become more expensive and this leads to higher inflation in the economy. So, for the domestic population, even the basic essentials become expensive. This adversely impacts the overall standard of living of the Indian People. On the other hand, there is an increase in the foreign direct investments as well as foreign institutional investments. This leads to a tremendous increase in the foreign exchange reserves. Hence, the paper would study the overall impact of currency depreciation on the Indian Economy.
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