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Today you will read General Awareness topic : Pound or Dollar which is More Bigger than Rupee and how It impacts ?
As we all know, rupee is the national currency of India. From the perspective of Indian economy, pound which is the national currency of England and dollar which is the monetary unit of United States of America are both foreign exchange and the country needs to maintain an adequate reserve of both these foreign currencies in order to make international trade with the various foreign countries, most of which like to purchase and sell goods and services in dollars. Since India makes an enormous amount of export and import which are mostly done in dollars and to some extent in pounds (when it comes to international transactions with England), both these monetary units have maintained a significant influence on the Indian economy.
As far as the latest rupee- dollar exchange rate is concerned, one dollar is equal to 56.135 rupees. This means that the price of one dollar is 56.135 rupees. And as per the current rupee- pound exchange rate, 1 pound is equal to 85.6343 rupees. This implies that the price of one pound is 85.6343 rupees. From this information, we can have a clear idea that pound is much more stronger than rupee than what dollar is as compared to the same currency, i.e., rupee.
Every year, India makes a large amount of export to a number of countries like China, United States as well as England. So, if there is any fluctuation in the rupee- dollar or rupee- pound exchange rate, it is bound to have a phenomenal effect on the Indian economy. If there is any increase in the rupee- pound exchange rate, it indicates a devaluation of rupee with respect to pound and likewise, an up valuation of pound with respect to rupee.
This means that the English buyers can buy more of rupee than before with the same amount of pound. But on the contrary, the Indians will have to invest more of rupee than earlier in purchasing one pound. What it implies is that the Indian goods will become cheaper in the international market, thereby leading to a fall in the profit margin of Indian exporters. So the monetary value of country’s export will definitely fall. On the other hand, this sudden increase in exchange rate will create an adverse pressure on import as the foreign goods are likely to become costlier and if they are relatively inelastic goods, then the Indian importers will still have to purchase it even at a higher price. This will increase the monetary value of the country’s import.
This is exactly what is happening in the Indian economy. The rupee- pound exchange rate has been constantly increasing at regular intervals and hence, the Government as well as the private importers have to spend more money in importing the commodities from England. This, in turn, increases the price of such goods in the Indian market. Now, in case of necessary goods which are relatively inelastic, the Government has to sell them at a subsidized rate which creates additional financial burden on the Government. But the Government cannot bear the entire margin by which the prices increase. A part of it has to be borne by the ultimate consumers as a result of which, the general expenditure of the common mass is going on rising.
So, on one hand, the country’s export is declining while on the other hand, its import is constantly rising which increases the gap between the total import and total export of the country. So, India has been suffering an adverse Balance of Payment (BOP) for almost three decades. India mostly imports items like petroleum, capital goods, chemicals, dyes, plastics, pharmaceuticals iron and steel, uncut precious stones, fertilizers, pulp paper and many more. It concentrates on the export of tea, sugar, spices, diamonds and various other goods. One must keep in mind that India is the largest processor of diamond and hence, diamond is one of the most popular items of export. There will be a huge adverse effect on the total quantity of import and export if the exchange rate of rupee and pound goes on fluctuating at such a frequent rate.
Likewise, any increase in the rupee- dollar exchange rate creates a similar effect on the Indian economy. The money- value of the country’s export will fall while that of the nation’s import is going to rise, thereby leading to an adverse Balance of Payment.
So, we see that the increase in exchange rate is very harmful as far as the country’s international trade is concerned. Thus, the Indian economy is often facing problem with the increase in exchange rate but the Government has still not been able to find a solution to this problem. But this is a kind of economic crisis which has to be overcome in a few years, otherwise the Indian economy is going to face ample difficulty in the long- run.
The Government must come up with a sustained solution which can minimize the gap between the country’s import and export and hence can eliminate the adverse Balance of Payment.