What will happen if US Dollar becomes equal to Indian Rupee?
USD is considered one of the highest valued currencies. Most of the international trades and exchanges are valued using this currency. The dollar’s value has always been higher than other currencies. This is why many countries believe its currency value should be equal to 1 US dollar and they think it will strengthen the economy.
Let us consider if the value of 1 Indian rupee becomes equal to 1 US dollar again as it was in 1947. What will be the effect of it? Will it be beneficial for the economy of India? And why exactly is the value of the Indian rupee devalued?
“With liberalization, Indian industry gained international exposure because of which it became imperative for companies to rework their strategies to become globally competitive.” – Baba Kalyani
“So the American economy needs the world, and the world needs the American economy.” – Rodrigo Rato
STATISTICS – What Numbers have to Say?
- It is believed that in 1947, the value of 3.30 INR was equal to 1 USD.
- In 2020, due to the COVID-19 outbreak USD to INR exchange rate hits a record low 1 USD = 76.67 INR.
- Kuwaiti Dinar (KWD) has the highest currency in the world, 1 KWD= 245.70 INR
- Iranian Rial (IRR) is the lowest valued currency in the world, 1 INR = 570 IRR
|US Dollar||Value in Indian Rupees||Year|
DESCRIPTION – Let’s take a Deep Dive
Today the value of 1 US dollar is in the range of 72 – 75 Indian rupees. But it was 1 USD = 1 INR in 1947. Since the independence value of INR is continuously decreasing due to many reasons. Let us discuss some of the reasons:
- Devaluation of rupee = After independence, the Indian government took loans from many countries and institutions for the development of the country. But they were unable to pay back the money with the present exchange rate. So Indian government devalued the Indian rupee.
- Wars = In the wars between Pakistan and China, India suffered many losses and again had to take loans from other countries. At this point, India needs foreign investors. So to attract them, the government again changed the exchange rate.
- Many political changes happened in India during this period like the assassination of Indira Gandhi which led to the loss of confidence of foreign investors.
- Economic Crisis in 1991 = In 1991 Indian government realized the value of liberalization. The changes in demand and supply during this time led to a change in the value of the rupee. The government had a balance of payment problem due to which an economic crisis happened.
- Global Economic Crisis = In 2007 Indian rupee touched a high of ₹39 to the dollar but the global economic crisis in 2008 depreciated the value of the rupee and it touched the low of ₹ 51.
- Depreciation in 2013 = Due to the surge in dollar demand from import and capital outflows by FIIs pulling out, the debt market exchange rate decreased from 55.48/$ on May 22 to 57.07/$ within the next fifteen days.
Seeing all these reasons it seems impossible that the value of 1 INR will be equal to 1 USD. But let us assume if this happens then what will be the positive and negative aspects.
Pros of the situation:
- Imports will be cheaper – As the value of the rupee becomes more than other currencies, we have to pay less price than now for buying goods which is beneficial for developing countries. Ex: If one wants to buy the latest iPhone for $500 then that person can buy it at just ₹500. Also, the crude oil price will decrease.
- Travelling to another country will be cheaper – Now if someone wants to go on foreign vacation then they have to think about budget and it is very expensive. But if the value of 1 INR is equal to 1 USD then travelling will be less expensive.
- Brain Drain will stop/reduce – One will not choose a job in another country as an option if they are getting the same amount as payment here.
- The overseas transportation and logistics costs will be reduced.
Cons of the situation:
- Export of goods will reduce – Many countries buy Indian products because of less price. But if the price difference becomes zero then Indian goods will be way more expensive than competitive countries and it will hamper the export of goods which is not good for developing nations.
- Decrease in foreign investment – Foreign investors come to India due to cheap labour availability. Now if a company used to pay the worker Rs14000 that is 200$ now they have to pay them 14000$ so they would start investing in other countries rather than in India if 1 USD equals 1 INR.
- Companies that are currently investing in India will start to move out.
- Increase in Unemployment – With the decrease in foreign investment employment will also decrease.
- Effect on banks – If employees are getting less salary then they will not be able to pay EMI so loans will remain unpaid and it will affect badly on banks resulting in increased NPAs.
India is still a developing nation and as a developing nation ‘Foreign Investment’ in the country is very important. Most of the foreign investors invest in our nation because the value of the Indian Rupee is less so they can afford cheap labour. India needs to export goods so that more money will come to the nation. Presently the situation of 1 INR equal to 1 USD, is not beneficial for the Indian economy.
Aap Kya Sochte Ho?
Reading this article on What will happen if 1 USD = 1 INR? Write your thoughts in the comment section below
Join our Telegram Channel to ensure that you receive updates on Latest GD Topics.
Author – Vaishnavi Guntoorkar