Have you ever wondered What Happens If 1 ₹ = 1 $ (Rupee=Dollar) ? Let us take you to the facts
As it is always a race in currency exchange market or Dollar vs India Rupees.
Every Indian wish that why can’t be a one rupee is equal to one dollar. This is the question quite similar to – ‘Why can’t we print notes from the printer to pay all the debts’ . Well there are both Pros and Cons if situation like this happen.
Let see what happen if over-night or in a short period of time Indian Rupee become equal to 1 Dollar.
Before getting started i want to make you clear that High value of currency does not means better economy if that was the case then Bangladesh would have had stronger than Japan because 1 Bangladeshi taka = 1.4 yen.
Pros If 1 Rupee equal to 1 Dollar
1. Buying goods will be cheaper for Indian in International market because this will make Import cheaper which is quite good for the developing country.
2. Buying luxurious good will be very easy and cheap for Indians. Simple explain is buying I Phone will only cost around thousand rupees.
3. Ads import will become cheaper than petrol prices will be cheaper resulting in reducing the transportation cost of the goods around the country.
This Looks like a good scenario, Isn’t is? , but it will not last long for this situation because other side of the story is completely different.
The Cons of this situation
1. The Export will become quite expensive because Indian product will become expensive comparing to to other competing nations. And today Indian export is quite booming above and if it become expensive or other countries then why will any country buy Indian costly product if they can buy the same form another country in much cheaper rates.
2 . No foreign Investment because the no.1 reason for investment of foreign bodies in India is cheaper labor cost. Foreign companies will not be investing in India if they will get cheaper labor cost in any other country.
3. Investment in Indian IT sector and Service sector which contribute in huge amount of Indian economy will be gone the simple reason behind it is that IF rupee become equivalent tot dollar why would a company will pay seventy five rupee per month if they can hire someone outside who will do the same work for 3 thousand dollars or rupees.
4. Another funny cons of it is that why anyone will pay 4 thousand rupee to an apartment maid if they can buy a thousand dollar vacuum cleaner so eventually people will loose jobs which will lead to unemployment
5. The investment will come to a complete economic slowdown. The outsourcing of jobs from India will be stopped. And even Companies in India will start to move out if they will not see any huge profit. This sound unrealistic right? Well in 2008 similar situation happened in 2008 when Dollar was quite strong around 40, The imports are good but the BPO sector and the IT sector suffered alot.
The situation of 1 rupee becoming 1 dollar is not affordable for growing or developing country. Now someone will say what if we dont need foreign investment as we use all the swadeshi stuff, well that will not work either for proof we have done it till 1990. And economic growth happen when we let got that idea of “Only swadeshi “. Because the point is simple – If we boycott foreign products then they will boycott our products. which will reduce export because we will reduce imports. Simply not beneficial. It is called protectionism and close economy which is completely opposite to open economy. Less exports means less foreign reserves.
Japan also suffered a huge economic loss when their currency overvalued in 1986.
China has the fixed rate system in which the government decides the value of currency and the devalue their currency against the dollar all the time just to capitalize on the export market. In the beginning of 2016 China has done the same.
Our Finance minister and RBI governor is not worried about he falling rupee but they are worried about the fluctuations in the market. The stabilization of Indian rupee is important thing whether it might be on 60,50 or seventy. suppose If today rupee is 60 and tomorrow it will rise to 70 it will make too much fluctuation in short time and not good for economy.
As we adopted floating rate system since 1975 the finance minister and the RBI governor and the government cannot decide the currency rate . In India it is the market supply and the demand of rupee decides the value. But the Finance minister and the RBI governor do have control over the policies and maintaining the foreign reserves of the country through this they try to maintain the value of proof be constant by controlling the inflation rate so that the currency will not go completely depreciated.
As an Indian we do want our currency to be high valued but at what cost and the cost is too much.
We should not think about currency high valuation util we become too stable in our economy and start producing more and more and not only purchasing . We have to balance them both and then walk ahead they it will make some good affect on our country.