Indian Rupee against the U.S Dollars for a Five Year Period

Indian economy is one of the most promising economies among the emerging markets in the world.  The Indian economy underwent noticeable and a consistent growth for at least five to eight years from the beginning of the last decade. Though the present economic situation seems to have a declining trend due to administrative and political failures, Indian economy has the prospective for regaining its strength. India has been a preferred center for BPO business and it impacted the Indian economy significantly that is apparent from the position of Indian currency (Indian Rupee or INR) against the U.S dollars (USD). This paper is analyzing the position of INR against USD for the last five years.

During the first half of fiscal year 2010-2011, India had an economic growth rate of 8.9 %. It was a result of a consistent economic growth for at least a five year period.  The various factors such as increased opportunity for outsourcing business, an enthusiastic services industry, and a vibrant trade relationship with the global market influenced the economic growth of India to great extents. The USD-INR exchange rate is considered as an important indicator that helps in decisions on foreign investments. The USD-INR exchange rates has impacts on the fortunes of several business firms, various finance sectors and even on the Indian government.  (Gupta, A & Sirohi, S., 2011).When considering the five year period ending up in 2010, the overall position of INR against USD was stable excluding some short periods of instability. For example, the INR exchange rate against USD was at 43.4 INR for 1 USD in the year 2004. This rate did not undergo considerable variations through the following years. The rates were 43.62 in 2005 and marginally increased to 44.48 in 2006. This trend continued through the next year and it reached to 43.1 towards the end of the fiscal year in 2007. In the year 2008, INR gained its strength against USD with an exchange rate of 40.02.The next year in 2009, INR suffered a record loss against USD as it reached at 50.64. By the end of 2010, again the trend reversed and INR became more stable with its exchange rate against the USD being 44.89. The inflation rates in the Indian economy were higher during the five year period and accordingly the Consumer Price Index (CPI) also was increased. CPI was 10.88% in 2009 which again showed a hike when it reached to 13.19% in 2010. In the same year, the Foreign Direct Investments (FDI) also was declined. The year 2011 did not do much damage to the Indian currency and it was almost stable with a rate of 44.58. But from the beginning of 2012, the position of INR has been weak against USD and still continues to be weak with an exchange rate around 54.9. Till date, the depreciating trend is continuing for the Indian currency. (Historic Look up, 2012).

One of the industries which get directly impacted with the INR – USD exchange rates is the BPO sector. As the depreciation of INR continues, the BPO sector benefits from it as they can earn more money in terms of Indian currency. But it cannot be assumed that the rupee depreciation can be beneficial for the BPO sector, eventually.  It certainly has some negative effects on the BPO sector, maybe a little slighter than other sectors of the economy.  This is because of the fact that though BPO firms earn incomes in USD, they have to meet their business expenses such as travel expenses, energy expenses etc. in Indian currency. The inflationary condition also affects the industry in a negative way. (Mike, 2012).

Both internal and external issues are attributed to the present crisis in Indian economy. The negative political climate and the prevalent corruption scandals are major reasons for the foreign investors to have a negative judgment of governance insufficiency in India. The recent decline of INR against USD and the outbreak of the EU debt crisis have caused the current downfall of Indian economy. The recent performance of India’s ETFs point to a decline compared to the promising performances at the beginning of this year. This can be noticed from the performance of EPI which is one of India’s largest trading ETF. EPI had an excellent start during the beginning of the year when the instability of INR was not considered as a trend to continue. Like other ETFs of India, EPI also had only moderate performances towards the middle of the year and the same trend continues till date. (Magoon, C., 2012)

Economic specialists think that the current depreciation of the Indian currency against USD may last for some time. The Indian government has responded to the volatility of INR in the form of reforming economic policies. Even if it may take a reasonable amount of time, policy initiatives will improve the confidence among the foreign investors. It implies positive reflections in the Indian markets. India has the potential to become the leading economy among the emerging markets. India has brilliant resources in preferred industry sectors such as finance, IT and healthcare. Even if INR may find it difficult to appreciate much against USD for at least in the coming years, Indian economy can grow to its best if INR can maintain stability.

References

Gupta, A & Sirohi, S (2011). Indian Rupee Currency Analysis: INR-USD- Will the Rupee Depreciate? Retrieved on April 7, 2017 from

Historic Look up (2012). In X-rates. Retrieved on April 7, 2017 from

Magoon, C (2012) India ETF Report: Positive Sign? Retrieved on April 7, 2017 from

Mike (2012). Impact of weak Rupee on IT-BPO sector in India. Retrieved on April 7, 2017 from