The Rupee has, in recent times, experienced a series of depreciations against the dollar. As at 18th June, 2015, the Rupee had suffered a continuous decline for four consecutive days, valued at 64.26 against the dollar, and representing the record lowest for a period of 6 months. This happened before the all-important meeting with the U.S Federal Reserve.
The dwindling of the Rupee has left an imprint on the trade front of India. The recently-released figures for the month of May seem contradictory. The figures indicate a reduction in the trade deficit, from $11.2 billion in May, 2015 to $11 billion in April, 2015 and currently $10.4 billion in May, 2015.
Conversely, the trade numbers also show that the country’s exports have constricted from $27.99 billion in May 2014 to $22.3 billion in May 2015. Imports, as expected, have also had a fair share of the contractions, reducing to $32.75 billion in May, 2015, representing a whopping reduction of 16.5% as compared to the figures released in May, 2014.
The depreciation is not only restricted to the Rupee, as the oil import bill has dropped due to the decline in prices on the international market. Putting all these factors together, the trade industry looks quite gloomy. Due to the high volatility and sensitivity of the crude oil commodity prices, it is not possible for these prices to forever remain low.
Also, the dwindling of the economies of those countries that import Indian products are nothing good to write home about. The net effect of these is that the fall in the Rupee has had a negative toll on the Indian trade sector, and this has made foreign exchange management a very hectic task.
As unpleasant as the story might sound, internal remitters have a different story to tell as the depreciation of the Rupee apparently has a pleasing effect on them. This is evident in fact that India currently is a force to reckon with as far as inward remittances are concerned.
Statistically, the Rupee has experienced just a total depreciation of 1.25% this year, but if this still gives remitters something to smile about, then it means that the monetary authority of the country has to rise to the occasion to prevent further depreciation.
The figures released by the Reserve Bank of India (RBI) indicate that its net spot Dollar buying is $33.1 billion for the first four months of this year, whereas that for 2014 was $34 billion.
The RBI seem unperturbed by the current depreciation of the Rupee. But these factors should make them proactive – the purchase of Dollars gives a country an upper hand to face any future hikes in crude oil prices, and that the stability of the Rupee against the Dollar prevents any possible pull-outs of foreign funds from the Indian market.
In the light of these complications, the RBI has to take this situation seriously and devise measures that can counteract the effect of this decline in the value of the Rupee. All hands must be on deck if the stabilisation of the Rupee against the dollar is to be fruitful.