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28 August 2013updated 22 Oct 2020 3:55pm

Why is India’s currency on the slide?

New low against the dollar today.

By Andrew Amoils

The Indian rupee crashed to a new low against the US dollar today as foreign investors continued to pull their money out of the country. Following a slump of 3 per cent today, the rupee has now depreciated by 24 per cent this year from 55 per dollar at the end of 2012 to 68 per dollar currently.

According to Timetric wealth analyst Shekhar Tripathi the depreciation is being caused by a number of factors. These include rising oil prices and a high current account deficit. He stated “the price of crude puts tremendous stress on the Indian Rupee as India has to import the bulk of its oil requirements in order to satisfy local demand.”

A lack of government reform has also been highlighted as a contributing factor as the Indian government could have introduced far more reforms during the boom years between 2003 and 2008. Instead they failed to sufficiently build infrastructure or liberalize markets for labour, energy and land during this period and now it is far more difficult to source investment for this.

According to Progressive Media analyst Sunil Agarwal “the lack of economic reform and political paralysis was a major cause of the recent depreciation with the Reserve Bank of India sending out mixed signals on monetary policy”.

He also pointed to the recent recovery in the US which has encouraged US investors to pull their money out of emerging markets and invest more money onshore.

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India’s problems are not limited to the recent depreciation. Despite relatively strong growth over the past decade India remains one of the poorest countries in the world with the bulk of the population still living below the poverty line.

According to the latest Credit Suisse Wealth Book India’s wealth per capita amounted to US$2,560 per person at the end of 2012 which is well below the worldwide average of US$31,500. It also compares poorly to other major emerging markets such as China (US$15,000) and Brazil (US$16,500) and perhaps most alarming it is well below the fast growing Indonesia (US$7,100).

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