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Read and develop points for discussion on GD Burning topic: Economic reforms can halt the depreciation of the rupee
The Indian rupee was one of the worst performing currencies in the world last year, hitting a record low of 68.85 against the US dollar in August. According to Anis Chakravarty, senior director at Deloitte India, structural problems of the domestic economy such as slow growth, high inflation, and widening fiscal and current account deficits are responsible for the devaluation of the Indian currency.
To prevent the depreciation of the rupee, it is important to reverse the current economic trends and ensure high growth rate of the Indian economy, low inflation rate and low fiscal and current account deficits. And all these are possible with economic reforms.
Last year, giant companies like Arcelor Mittal and Posco cancelled their multibillion dollar projects due to delays and problems pertaining to land acquisition.
According to reports, foreign investors had pulled out close to Rs 188 billion (US$3 billion) from the Indian market in July 2013 and this placed immense pressure on the rupee.
So, based on the incidents that had happened in 2013, it is safe to say that an increase in foreign direct investments (FDIs) will halt the depreciation of the rupee.
This is exactly what the Indian government is doing. In an attempt to attract foreign investors to India, the government has increased the FDI caps in a number of sectors and has made it easier for foreign companies to enter the Indian market and set up firms here.
To ensure that more revenue enters the Indian market, the Indian government is increasing its export value and reducing the import of several commodities, including gold and silver. This will ultimately help reduce the wide current account deficit that India is facing.
Recently, K C Chakrabarty, deputy governor of the Reserve Bank of India, said that the country cannot afford to import gold and urged the public to not borrow money from banks to import gold.
And Finance Minister P Chidambaram made it clear that the government is not planning to change the import duty and other restrictions on gold until the current account deficit is under control.
Based on the economic reforms undertaken by the Indian government, Moody’s Analytics claims that the worst is over for the Indian economy and that in 2014 and 2015, the Indian economy will grow steadily - the GDP growth rate of the country is expected to touch 5.5% this year and expand to more than 6% in 2015.
Last year, India was not prepared for the impact from the US Federal Reserve’s winding down of its stimulus but this year, the government is prepared and it has put in place the right measures to protect the economy.
Economic reforms can halt the depreciation of the rupee – in fact, with the implementation of the right economic policies, the inflation rate in India has reduced from over 7% in October 2013 to 6.16% in December 2013.
The Indian government is working hard to boost the growth rate of the economy and this is evident in the value of the rupee, which has become stable in the last few months.
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