Causes of Devaluation in Rupee Lack of competitiveness / inflation. The long term decline in the value of the Rupee reflects India’s relative decline in competitiveness. In particular, India has a higher inflation rate than its international competitors. In November 2013, Indian inflation reached 11.24%. Therefore, there is relatively less demand for the rising price of Indian goods; this reduction in demand causes a fall in the value of the Rupee. Current account deficit. A consequence of poor competitiveness and high demand for imports is a current account deficit. This means India is purchasing more imports of goods and services than it is exporting. A large current account deficit tends to put downward pressure on a currency. This is because more currency is leaving the country to buy imports than is coming in to buy exports.
Posted on: Tue, 16 Dec 2014 17:42:05 +0000
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