Page 534 - SSB Interview: The Complete Guide, Second Edition

Current Scenario and Reasons for Falling Value of

Indian Rupee

Trade deficit:
This is considered as one of the most important reasons for the falling

value of the Indian rupee. A trade deficit happens when a country

imports more than it exports. India’s trade deficit has hit $14.88 billion
since November 2014. The major imports include gold, crude oil, etc.

The introduction of GST and demonetisation also account for the

depreciation of the Indian rupee by disrupting the domestic supply
chains, which are derived from the increasing domestic demands. The

US has the widest trade deficit of $7 trillion, more than any other

country, but they are exporting as much as they import. However, being
a country that imports more than it exports, India loses the value of its

currency (rupee) as it uses a foreign currency for trade.

Increase in crude oil prices:

Crude oil per barrel is $66.80 presently. India is one of the largest

importers of crude oil. It accounts for up to 80% of the total oil needs in
the country. Ways by which crude oil prices affect the Indian economy

are:

Inflation

Oil subsidiary and fiscal deficit

Rupee exchange rate

Petroleum producers

Reducing crude oil prices reduces inflation in the country. But, it is to be
noted that India is the sixth-largest exporter of petroleum products. A

fall in crude oil prices also affects the exports from India. It is a

balanced relation.