Indian Rupee has depreciated about 7% against the U.S Dollar since Inflation tremors have creeped up. This can be attributed more to the strength of the greenback and less to the weakness of our economy. But the point of interest is the heavy appreciation of Russian Rubel (about 30.2%) and Chinese Yuan (2.4%) against our Rupee, since inflation. The strength of Rubel could be traced back to the fact that Russian oil imports have been highly attractive, with India enjoying steep discounts reducing burden on our twin deficits. The next thing to consider is the impact of a depreciating rupee against the Yuan (of almost 12.5% since COVID). Here we need to understand why a depreciating currency is not always bad and what benefits it could offer.
A weak Indian rupee would make our exports attractive in the global market as our products would fare cheaper. On the other hand, our imports would become expensive, and this would lead to more demand for local alternatives. This would mean that both imports and exports would lead to a faster pace of economic growth when a nation’s currency is weakened.
Also, with China still reeling from lockdowns due to the pandemic, trade tensions with the US and a looming financial and housing crisis, India looks like the next best trade alternative. This is also true as the Rupee is now much cheaper against the Yuan, thereby increasing demand for our exports.
The above table shows us the list of products where we have a comparative advantage over China. The data is of 2019. The country which has a higher number for a product has a competitive advantage over the other for that product. For example, we have an advantage over China in export of Chemicals (1.55 vs 0.54), Textiles (2.85 vs 2.17) etc.
India could now leverage the attractiveness of our Rupee and boost its exports in those goods where it does not have a competitive advantage over China or is competing with it head-on (say electrical and mechanical raw materials or Plastic & rubber for example). This would go a long way in helping our country avoid the perils imposed by uncertain times.
References:
- Times of India
- Trading Economics
- https://oec.world/en/