I have no knowledge just a poor farmer I posted this thread to give information hope you can explain me what is happening. Why is there a constant crash in rupee and foreign reserves.
Due to a strong dollar and increasing interest rates in the US, money flows out of emerging markets and into the US. Due to this emerging market currencies start weakening.
This has nothing to do with governance, but everything to do with supply and demand of dollar. When there is less supply of dollars, the dollar strengthens and the rupee weakens. So RBI infuses the system with dollars from the forex.
It's not a problem though. This keeps happening regularly and no country is immune from it. Sometimes dollar is weak, sometimes rupee is weak.
http://www.dnaindia.com/business/re...ys-former-rbi-governor-raghuram-rajan-2651010
Reacting to the weak Rupee, former RBI governer Raghram Rajan in an interview to CNBC said that he was not too concerned about the domestic currency as "it is more a factor of dollar strength rather than necessarily rupee weakness".
https://indianexpress.com/article/b...niti-aayog-vice-chairman-rajiv-kumar-5244683/
“Rupee is overvalued in terms of REER. There is no reason to worry…RBI has maintained that it will not interfere to keep the rupee at any particular level,” said Kumar. Responding to criticism of the government on the issue of handling of the rupee, Kumar said that during the UPA-II regime in 2013, the rupee had weakened from 57 to 68 a dollar in three months, and hence the comparison would be misplaced.
Since the rupee is anyway overvalued, its weakening was only natural.
https://economictimes.indiatimes.co...al-value-niti-aayog-vc/videoshow/65430197.cms
NITI Aayog vice chairman Rajiv Kumar Thursday said the falling rupee is not a cause of worry as it is getting back to its natural value. "The rupee rose by about 17 per cent during the last three years. Since the beginning of this year, rupee has declined by only 9.8 per cent. So, it has recovered. It is rather coming back to its natural value," he told reporters on the sidelines of an event in New Delhi. Rupee should be realistically valued and should not be overvalued, he said, adding that the exchange rate is a price which should reflect true equilibrium between demand and supply.
What the RBI is doing is by using forex, they are allowing the rupee to weaken gradually over many months instead of simply letting it fall at once. The primary reason being India is still a poor country and if oil prices rises abruptly, then people will suffer due to increase in CPI. But once equilibrium is reached, the rupee will stabilise. They are saying that value will be about Rs 72 to a dollar.
In March 2019 india has to pay a loan of $222 billion so I am just informing. Thanks for your reply and please add more info to make things clear.
Again, not a problem. Most of it's privately owned and have very low interest rates. Most of that sum will simply get refinanced. Most or pretty much the entire amount will remain in India.
To put things into perspective, if India has to be in Pakistan's position today, with current GDP India's forex should fall to $50B and external debt should rise to $1.3T, with the govt holding $1T of the external debt. Right now, India's forex is $400B and govt external debt is only $111B. So the chances of that happening is zero.
India has a BoP surplus. Last financial year, it was $41B. We basically have enough money to fund our own trade deficit and also Pakistan's trade deficit and still have a surplus. So a little bit of dollars leaving in the short term to protect the rupee does not harm us. We will simply make it back later.
