7 reasons why Rupee is currently world’s fourth weakest currency 1 Foreign Direct Investment: After several debates and delay, the Government finally allowed investment in the retail sector and several other sectors, including civil aviation, telecom, defence, but at the same time, delay in bringing such reforms witnessed withdrawal of major projects by global giants like ArcelorMittal and Posco. Due to long delay in land acquisition, corruption and adverse market conditions, steel major POSCO scrapped the proposed 6 million tonnes of steel plant in Karnataka. It was followed by ArcelorMittal that also scrapped its $12 billion (Rs 50,000 crore) steel plant project which it was planning to set up in Odisha. 2 Withdrawal of US stimulus: Earlier in June, when the US Federal Reserve chairman Ben Bernanke announced that US will withdraw stimulus from foreign countries, dollar demand surged as foreign investors withdrew their investment from the Indian market in search of profitable return in developed economies. As a result, economic crisis continued with Rupee slumping to all-time low and no country willing to invest in India. 3 Foreign Institutional Investment (FII): Foreign investors have pulled out nearly Rs 18,500 crore (about $3 billion) from the Indian market as Rupee continues to tumble and the economy is unlikely to see any recovery in the second half of the downturn with withdrawal of investment from abroad. 4 Recovery of Europe and Japan: The Eurozone debt crisis is also expected to move onto a positive territory as a result, the investment will be attracted to European nations. On the other hand, Japan recovered well with the highest level of exports since July 2010. 5 Current Account Deficit(CAD): The fiscal deficit is no good news for the economy. Current Account Deficit (CAD) is near red line as it touched a record high of 4.8 per cent of GDP in the current fiscal year. 6 Strengthening of dollar overseas: The US economy recovered with speculations that Federal Reserve will withdraw its stimulus package which strengthened the Dollar against Rupee. 7 Low GDP: Overall, the Indian economy remains in bad health with low GDP and slowdown in manufacturing, mining and agricultural sectors. Within a week, Index of Industrial Production(IIP) contracted to 2.2 per cent, demanding a cut in interest rates to revive demand and to fast-track implementation of large projects to boost economic growth. Seeing the pathetic state of economy, experts also feel that the factor like low GDP, high inflation, weak rupee and low IIP is a signal of recession and if this recession is not rectified the economy can enter into a state of stagflation where growth of economy stagnates and inflation is extremely high. Shared from India Behind the Lenses
Posted on: Wed, 21 Aug 2013 08:55:34 +0000
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