Summer Internship Project Report

On
CAUSES & IMPACT OF FOREIGN CURRENCY EXCHANGE
RATE FLUCTUATION ON INDIAN ECONOMY.

SUBMITTED BY

BULU PRADHAN
REGD NO:2306284038
Batch 2023-25

UNDER THE GUIDANCE OF

Sujit Sahoo Dr. Sthitipragyan Biswal

External Guidance Internal Guidance

As a Partial Fulfillment of MBA Program

ASTHA SCHOOL OF MANAGEMENT, BHUBANESWER

 CERTIFICATE OF THE GUIDE
This is to certify that Mr. Bulu Pradhan, a student of "ASTHA SCHOOL OF
MANAGEMENT, BHUBANESWAR" has successfully completed the Summer
Internship Program (SIP) towards partial fulfillment of the MBA Program from
03 June 2024 to 17 July 2024. The SIP report titled on “A Study on Causes &
Impact of Foreign Currency Exchange rate fluctuation on Indian Economy” is his
original work and the same has not been submitted prior to any institution in any
form.

I wish her a successful and prosperous career ahead.

DATE:
PLACE: BHUBANESWAR
Dr. Sthitipragyan Biswal
PROFESSOR
ASTHA SCHOOL OF MANAGEMENT
BHUBANESWAR
 To whomever it may concern
This is to certify that Mr. Bulu Pradhan of Astha School of Management of MBA in
Finance Department has Successfully completed his summer internship program in
the project Causes & impact of foreign currency exchange rate fluctuation on
Indian economy. of our firm PAMS &ASSOCIATE the Summer Internship Started
From 3rdjune 2024 to 17thjuly 2024

Mr. Bulu Pradhan shows a lot of skills in his work and we found him to be
Extremely curious and hard working. His association with us beneficial and we
wish him all the best in future endeavors.

PAMS & ASSOCIATE

CA Sujit Sahoo
 DECLARATION
I, Bulu Pradhan, hereby declare that the Internship report entitled "A
Study on Causes & Impact of Foreign Currency Exchange rate
Fluctuation on Indian Economy" prepared by me under the guidance of
Dr. Sthitipragyan Biswal, Professor of Astha School of Management and
external assistance by Mr. Sujit Sahoo, PAMS & ASSOCIATES.

I also declare that this Internship work is towards the partial fulfilment
of the university regulations for the award of degree of Master of
Business Administration by Astha School of Management,
Bhubaneswar.

I have undergone a summer project for a period of Six weeks. I further

declare that this project is based on the original study undertaken by me
and has not been submitted for the award of any degree/diploma from
any other University / Institution.
 ACKNOWLEDGEMENT

I am glad to express my profound sentiments of gratitude to all who

rendered their valuable help for the successful completion of this project
report titled “CAUSES & IMPACT OF FOREIGN CURRENCY
EXCHANGE RATE FLUCTUATION ON INDIAN ECONOMY”
I record my deed sense of gratitude to my Internal Guide
“Sthitipragyan Biswal” and External Guide “Sujit Sahoo” who gave
me an opportunity to work under his guidance which led me to the right
direction for the research.
While presenting this project report, I have tried my best to the precise
and objective and up-to-date data and recent findings of animates
scholars have been included by drawing on recent issues of learned
journals and periodicals. I express my gratitude to the authorities
concerned in this respect.
I acknowledge my thanks to all faculties of Astha School of
Management and my parents, without whose co-operation this project
would not have been possible.
Last but not the least, I express my friends for their continuous
encouragement and help in this project.

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 TABLE OF CONTENTS
PAGE
CHAPTERS PARTICULRS
NUMBER
1.1 INTRODUCTION 09
1.2 OBJECTIVES 10
1 INTRODUCTION 1.3 SCOPE & COVERAGE 11
1.4 RESEARCH METHODOLOGY 11
1.5 LIMITATION OF THE STUDY 11
1.6 LITREATURE REVIEW

2 COMPANY PROFILE 2.1 13-15

3.1 DISCUSSION 17
3.2 EXCHAGE RATE MECHANISM 18
MAJOR CAUSES OF RUPEE
3.3 19
DEPRECIATION
3.4 EFFECTS OF DEVALUATION 24
3 DISCUSSION
3.5 MAJOR EVENTS OF RUPEE
DEVALUATION IN THE HISTORY 28
3.6 WHAT RBI CAN DO? 29

3.7
STEPS TAKEN BY GOVERNMENT 30

4.1 32
4.2 32
4.3 33
DATA ANALYSIS 4.4 33
4 AND
4.5 34
INTERPRETATION
4.6 34
4.7 35

4.8
INTERPRETATION OF THE DATA 35

5.1 FINDINGS 37
5.2 SUGGGESTIONS 38
MEASURES TAKEN BY
5.3 GOVERNMENT 39
5 CONCLUSION
5.4 CHALLENGES INFRONT OF RBI 39
5.5 CONCLUSION 40
5.6 ABSTRACT 41

N/A BIBLIOGRAPHY 1 BOOKS 43

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 2 WEBSITE LINKS 43
3 REFERENCES 44

CHAPTER 1
INTRODUCTION

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1.1 INTRODUCTION

This concerned project “Analysis of the reasons and impact of foreign

exchange rate fluctuation in recent years in contest of Rupee” briefly
enumerates the reasons of the volatility of the foreign exchange rate in recent
years and their impacts on various sectors as a result of rapid changing
environment in contest of the Indian currency “Rupee” with “Dollar”. The
foreign exchange rate is the price of the domestic currency stated in terms of
another currency. Since standardized currencies around the world float in the
value with demand, supply and consumer confidence, their values change relative
to each over time. Historically, from 1973 until 2011 the USD/ INR exchange
averaged 30.32 reaching an historical high of 52.84 in December of 2011 and a
record low of 7.19 in March of 1973. India may face its worst financial crisis in
decades if it fails to stem a slide in the rupee, leaving the central bank with a
difficult choice over how to make the best use of its limited reserves to maintain
the confidence of foreign investors. The fall in the value of Indian rupee has
several consequences which could have mixed effects on Indian economy. The
rupee has plunged to an all-time low against the dollar and its fall has become a
subject for debate.

The usual discussions on the fall of the rupee bring up

macroeconomics matters such as slow economic growth, huge current account
deficit, rising imports etc. At the time of independence when India had no foreign
borrowings the rupee was at par with the dollar. With the introduction of the 5
years plan and the subsequent requirements for foreign investments the dollar
slowly rose. In 1985, after the Bofors scam, which toppled Rajiv Gandhi’s
government, the dollar was equal to 12.35 rupees and since the economic
liberalization in 1991, there was a sharp devaluation of rupee and the rupee had
dropped to Rs. 24.5 against a Dollar. The dawn of the third millennium gave a
further worsened the condition rupee against and the rupee has hit an all-time low
of Rs. 65.42 against a dollar on the 22nd of August 2013. Indian economists are
trying hard to chalk out a strategy to counterbalance the falling value of rupee but
it seems the attempts are futile. Devaluation is usually undertaken as a means of
correcting a deficit in the balance of payments. Almost all the countries of the
world have devalued their currencies at one time or the other with a view to
achieving certain economic objectives. During the great depression of 1930
devaluation was carried by most muntries of the world for the correcting their
over-valuation. The Economic crisis in 2008, 2013 are also some of the major
epitomes of reason of the volatility of the foreign exchange rate in recent years.

7|P age
Devaluation
Devaluation means decreasing the value of nation's currency
relative to gold or the currencies of other nations. In common modern usage it
specifically implies an official lowering of the value of a country’s currency
within a fixed exchange rate system, by which the monetary authority formally
sets a new fixed rate with respect to a foreign currency.
For example, suppose the exchange rate between rupee and dollar is
Rs 25= 1 $. If this exchange rate is fixed at Rs. 30 = 1$ then it is called devaluation
of rupee. Earlier Rs. 25 could purchase a dollar and now more rupees (Rs.30) are
required to get a dollar. So, the value of rupee in terms of dollar has declined

For example: - Rs 25 = 1 $
Rs 30 = 1 $

Implications of Devaluation
▪ It helps to boost exports
▪ It will lead to higher cost of imported goods and make some of the capital
extensive
▪ projects more expensive to execute
▪ It will increase cost of dollar loans taken by companies and increase foreign
debt
▪ It will slow down the overall economic growth by increasing the interest
rates and dissuade flow of FII’s.

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1.2 OBJECTIVES: -

• To Study the causes of fluctuation of exchange rate

• To Understand the causes for decline of the rupee against dollar
• To Know the effects of the various crisis on Indian economy
• To Study the real implication of the stringent measures by RBI and
Central Government

1.3 SCOPE & COVERAGE: -

The Scope of this study includes the analysis of the causes

and impact of the recent volatility of the foreign exchange rate fluctuation of
rupee the Indian currency in comparison with dollar USD. The scope of study is
confined to discuss the various impacts of the foreign currency exchange rate
fluctuation on the Indian economy as a whole. This study comparisons will be
confined to only the fluctuation of rupee in comparison of dollar of USA USD.
The primary purpose of the study is to include the various steps that RBI or Govt
can take to check the negative outcomes of the fluctuation in the foreign currency
over the Indian economy.

1.4 RESEARCH METHODOLOGY: -

➢ Source of data: But for the sake of convenience and lack of time I have
collected the data from various secondary sources like websites, reports
from leading organizations, E-libraries, books, blogs, and published
research papers which are very simple, cognitive in nature.
➢ Sample Design: As the data timeline was vast, I have taken care of the
timeline from the year 2000 to 2022.
➢ Tools and Techniques used: I have used various charts like bar chart,
histogram for the purpose of analysis of the data. Apart from that I have
studies the trend line that is formed by putting the data together in a chart
form.

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1.5 LIMITATIONS: -

➢ This study is only confined to Indian economy.

➢ This study is not an elaborate one but rather than it is an exhaustive study.
➢ The study of comparison is only made between dollar and rupees.
➢ Some external factors are being ignored while studying.
➢ Political impacts are not taken into account.
➢ Steps taken by international organization like united nation, world trade
organization are ignored.
➢ International treaties and agreements made between different countries are
ignored.

1.6 REVIEW OF LITERATURE:-

❖ Dr. Manmohan Singh,(1991): -The courageous devaluation of the Rupee

by the PV Narasimha Rao government in 1991--that changed the course of
India's financial policy-making-was ordered by a hand-written note from
the then finance minister Manmohan Singh which was approved by Prime

10 | P a g e
 Minister Narasimha Rao on the spot without taking the Union Cabinet into
confidence. Singh said this at the launch of his book 'Changing India'-a 6-
volume collection of his speeches and writings. Singh said he was able to
persuade Rao to skip taking the decision to the Cabinet fearing it would not
have passed. "I still have that handwritten note," said Singh. Until then,
India had a fixed exchange rate under which the Rupee was tied to a basket
of currencies of India's biggest trading countries. However, the country
faced a serious economic crisis in end-1990 because of high interest
payments and higher imports growth than export growth. India ran
consistent current account deficits; inflation was high and fiscal deficit
widened to over 8 per cent of GDP.As a result, India's forex reserves had
dipped to $1.2 billion, barely enough to finance 2 weeks of imports once
the Gulf War resulted in high crude prices which ballooned India's import
bill. A devaluation of the Rupee had become essential to avert a financial
crisis, Manmohan had told Prime Minister Rao. India finally devalued the
Rupee by nearly 19 per cent in July, 1991.The devaluation shock was
originally planned to be a two-stage process. The first stage was a minor
devaluation to gauge the political and social reaction. The second dose was
a heavier dose to get the Rupee closer to its real value. The second dose
nearly didn't happen, Singh revealed.

❖ Sonal Varma of Nomura (2013) “We view the government’s guarded

response as appropriate because India’s macro fundamentals are in a much
better shape today than in 2013 higher growth, stable inflation and fiscal
commitment - and do not necessitate a knee-jerk reaction,” said in research.

❖ Upasana Bhardwaj, senior economist at Kotak Mahindra NSE -3.49 %

Bank, was not sure how much capital flow will come from these measures
but agreed that no panic reaction was needed. “Though
we need to be vigilant of rupee depreciation, there is no need to press the
panic button and announce any Big Bang measures because our
fundamentals are stronger compared with others,” Bhardwaj added.

❖ India’s former chief statistician Pranab Sen had a different view. “I am

puzzled by these measures since they seem to be sending out wrong
signals,” Sen said. “First, they give the impression that the government is
panicking, which will worry investors and encourage speculators because
it is rightly assumed that the government knows much more than the
average investor/speculator.”

11 | P a g e
❖ While the central bank is dealing with a fast-changing situation, former
RBI governor D. Subbarao says that the regulator should ideally stay
away from sector-specific measures. “I would say that in general, it is not
advisable for a central bank to get into sector specific interventions,”

❖ Radhika Rao, DBS Bank Apart from rate cuts, the RBI has been pre-
emotive with non-monetary measures, for instance, the temporary forex
swaps facility announced, said Radhika Rao, economist at DBS bank.

❖ Charan Singh, EGROW Foundation The government and the RBI will
have to swing into action very quickly. They have to build a scenario
analysis and see what is happening. One thing is clear, demand will sag
and production will fall. The spiral has started and tourism, travel
hospitality is already suffering.

❖ Ajay Shah, Senior Fellow, National Institute for Public Finance and
Policy: -There is a direct link between exchange rate and inflation.
Suppose the exchange rate increases from Rs 40 a dollar to Rs 50. Then the
price of a product that costs $100 in the world market goes from Rs 4,000
to Rs 5,000 in the Indian market. The full impact is much more than that
suggested by the share of imports in the GDP. This is because of a
phenomenon called the “import-parity pricing”. Many goods produced in
India are now sold at the world price. For instance, an Indian company
might make benzene or steel and sell it to an Indian customer, which means
there are no imports. Yet, this local transaction takes place at the world
price of benzene or steel (in US dollars) multiplied by the exchange rate.
Thus, the full footprint of the exchange rate is bigger than the share of
imports in the GDP.

12 | P a g e
 CHAPTER 2
COMPANY PROFILE
2.1. COMPANY BACKGROUND:
NAME: - PAMS & ASSOCIATE, CERTIFIED PUBLIC ACCOUNTANT
IN BHUBANESWAR, ODISHA.
LOCATION: - CI OFFICE LANE INFRONT OF DISTRICT
EDUCATION TRAINING CENTER (DETC) 1ST FLOOR 2 Besides
Sanskrit University, Odisha 7542001.
▪ SERVICES ARE PROVIDED BY THE COMPANY IS: -

I. Bankruptcy tax litigation

II. Business consulting
III. Business startup services
IV. Business tax planning
V. Business tax return preparation
VI. Debt collection relief assistance
VII. Financial advising
VIII. General bookkeeping
IX. Individual income tax preparation
X. Individual tax planning
XI. IRS representation & resolution
XII. Payroll accounting
XIII. Trusts & estates accounting

The PAMS & ASSOCIATE Pvt. Ltd is a consultancy company for their fees
to providing service to the others is Rs. 200.00 – 2,00,000.00 for consultancy
regarding FINANCE, TAXATION, ACCOUNTING, MANAGEMENT,
BANKING, and INSURANCE.

In this company for their consultancy to provide Service, Operation,

Solution, success, knowledge, and to finally providing a reasonable
solution.

13 | Page
Mission
➢ PAMS aims to be a dynamic and responsive organization to
catalyze the economic growth of its clients. We at PAMS aim
and are committed to act as partner in your growth by serving
and sharing our experience, expertise and knowledge base
which will boost your trust and confidence.

Objectives
➢ To provide core professional service thereby providing
full value to money.
➢ Quality service being top priority, the firm never
compromise on sincerity, integrity and timeliness.
➢ The firm considers confidentiality of information
received from clients and extremely important issue as
its prime duty. We have strict rules in place to ensure
confidentiality of information both within and outside the
firm.

Policy
➢ We are committed to enhance client satisfaction by
providing timely and effective Audit and advisory
services and other solutions and support services to
clients." We stand for our human resources for them
to be happy and well cared who in turn has made us
grow as a successful organization. We evaluate client
core information and its confidentiality as top priority.
We have a proper system in place to maintain and
safeguard such information.
 Head Office
Cuttack
Tala Telenga Bazar,
Purighat, Ring Road
Cuttack. 753 009
Phone No: 0671-2432813
Mobile No: +91 94373 14520
Fax No: 0671-2307252
Branch Offices
New Delhi
L-2/37A, DDA Flat, Kalkaji
New Delhi – 110 019
Mobile No: +91 9810767117
Fax No: 011 26034429
E-mail: sudhir@pamsassociates.com

Bhubaneshwar
Plot No: #506,Unit :9
Back Baya Baba Matha
Bhubaneswar
, 751 022
Phone No: 0674-2543528
Mobile No: +91 94370 76636
Fax No: 0674-2546374
E-mail: satyajit@pamsassociates.com

Laison Offices

Mumbai
557, 16th Main, 1st Block
Manjunath Nagar,
Bangalore 560010
Phone No: 080 23222720

Bangalore
Office No. 2, Chhadva Apts.,
ST Road, Near Diamond Garden, Chembur,
Mumbai 400 071
Phone No: +91-22- 25295181,82

Patna
206B, 2nd Floor, Asiana Plaza
Budh Marg,
Patna 800001
 CHAPTER 3
DISCUSSION

A BROAD DISCUSSION ABOUT THE CAUSES AND

IMPACTS OF FLUCTUATION IN FOREIGN
CURRENCY RATES

3.1 DISCUSSION
HISTORY OF RUPEE
India was one of the first issuers of coins (6th
Century BC). The word rupia derived from Sanskrit which means "a coin of
silver” The silver coin remained in use during the Mayur Mughal Era. Maratha
Era as well as in British India. Acute shortage of silver during the First Word war.
led to the introduction of paper currency among the earliest issues of paper rupees
14 | P a g e
include: The Bank of Hindustan the General Bank of Bengal and Bihar (l773—
75), and the Bengal Bank (1784—91).

HISTORY OF RUPEE DEVALUATION

Historically, from 1973 until 2011 the USD/ INR exchange

averaged 30.32 reaching an historical high of 52.84 in December of 2011 and a
record low of 7.19 in March of 1973. India may face its worst financial crisis in
decades if it fails to stem a slide in the rupee, leaving the central bank with a
difficult choice over how to make the best use of its limited reserves to maintain
the confidence of foreign investors. The fall in the value of Indian rupee has
several consequences which could have mixed effects on Indian economy. The
rupee has plunged to an all-time low against the dollar and its fall has become a
subject for debate. The usual discussions on the fall of the rupee bring up
macroeconomics matters such as slow economic growth, huge current account
deficit, rising imports etc. At the time of independence when India had no foreign
borrowings the rupee was at par with the dollar. With the introduction of the 5
years plan and the subsequent requirements for foreign investments the dollar
slowly rose. In 1985, after the Bofors scam, which toppled Rajiv Gandhi’s
government, the dollar was equal to 12.35 rupees and since the economic
liberalization in 1991, there was a sharp devaluation of rupee and the rupee had
dropped to Rs. 24.5 against a Dollar. The dawn of the third millennium gave a
further worsened the condition rupee against dollar and the rupee has hit an all-
time low of Rs. 65.42 against a dollar on the 22nd of August 2013. Indian
economists are trying hard to chalk out a strategy to counterbalance the falling
value of rupee but it seems the attempts are futile. A currency’s level has a direct
impact on the following aspects of the economy:

3.2 EXCHANGE RATE MECHANISM

All economies that interact with international economy can be broadly classified
into three categories on the basis of exchange tale policy of the country.

• Fixed Exchange Rate

• Floating or free Exchange Rate
• Hybrid system

15 | P a g e
 FIXED

FLOATING

HYBRID

Fixed exchange rate

Economies peg the value of their currency with

some other prominent currency like US dollar. This of exchange rate regime is
maintained by generally smaller economies like Nepal and Bhutan pegged to
Indian Rupee or several African nations.

Floating exchange rate

Exchange rate is determined by demand and

supply of the currency. Economies like US, UK, Japan etc maintain this kind of
exchange rate mechanism.

3.3 Major Causes for Depreciation of Rupee

Here is a detailed analysis of the factors that have caused depreciation of Indian
rupee. There are number of causes that results in the devaluation of rupee in
consonance of the dominant currency of the world i.e., DOLLAR.

16 | P a g e
 Rupee
Speculation

Decline in
Rising
Investor
Imports
Confidence
RUPEE
DEVALUATI
ON
Lower
Outflows of inflows of
foreign foreign
capital capital
Poor
Economic
Growth

Current Account
Deficit (CAD)

Insufficient
inflow of FDIs
and outflow of Inflation
the foreign
investments

RUPEE
DEVALUATI
ON

Strong Dollar Crude oil price

Import-Export
Mismatch

17 | P a g e
Rupee Speculation

It refers to the flow of funds or capital from one

country to another country in order to earn a short-term profit on interest rate
differences and/or anticipated exchange rate shifts. Once currency traders and
speculators realise that India's central bank is unable to manage its exchange rate
and reduce the adverse impact on its currency, they may enter into the market in
a big way in sell the rupee. As a result, rupee may get devalued more than it
should.

Crude price

Price of crude is one of the major factors that have

contributed to depreciation of rupees. India is one of the major importers of crude
oil. Increase in demand of oil all over the world combined with its shortage
resulting from the political uncertainties in Arab countries, has led to increase in
price of oil. Rising crude price on the other hand, has resulted in a higher demand
of dollar since crude oil is quoted in dollars. This rising demand of dollar in turn
has weakened the Indian rupee. It might be the case that Indian economy is at the
initial stage of J-curve effect with respect to the demand of oil but till the effect
reaches its maturity, rupee is expected to depreciate further.

Lower inflows of foreign capital

Further the uncertainty and delay in

our commitment to economic reforms, retrospective taxes and policy paralysis
within the government have created a fear in mind set of global investors resulting
into decline of foreign investment. RBI figures exhibit that they stood at $62
billion in financial year 2007-08. Dropped to $28 billion during the year of global
crisis 2008-09. then bounced back to $70.1 billion in 2009-10, and $64.4billion
in 2010-ll and close to $60 billion during the first 11 months April to February of
2011-2012.

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Inflation

The inflation decelerated to 7.7 per cent in first half of (April-

September) of 2012-13. WPI inflation was 8.07 per cent in September 2012,
which was 8.01 per cent in August 2012. It has fallen to 7.32 per cent in October
2012, 7.24 per cent in November, 7.18 per cent December 201217 and stood at
6.62 (provisional) for the month of January 2013.

Import-Export Mismatch

India for long has been facing an import-

export mismatch; imports far exceed exports resulting into a persistent current
account deficit. This in turn leads to another vicious circle. Persistent CAD leads
to currency depreciation; depreciated currency further increases the price of
imports which in turn further adds to the current account deficit. Figure 3 depicts
the widening current account deficit to GDP ratio since 2004-2005. As we can
see that this ratio has continually been increasing and it is expected to increase
further this financial year. As of June, 2013, India’s current account deficit
already stands at staggering $ -18.1 B.

Strong Dollar

In the past two years, demand of dollar has increased

significantly. This increase in demand can be attributed to increased confidence
of investors in US economy. A marked improvement has been observed in US
labour market and US equities have also performed well. Also, with euro zone
still in crisis, investors prefer Dollar over Euro. Investors are opting for capital
preservation rather than capital appreciation. This increase in demand of dollar
has resulted in its appreciation vis-à-vis other countries.

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Current Account Deficit (CAD)

CAD is considered to be the key factor

behind the steep volatility of rupee against dollar. CAD occurs when the total
import of goods and services of a country is greater than the total export goods
and services thus making India a debtor to the rest of the world. India’s current
account averaged a deficit worth 1.5 billion USD since 1947 until 2013.

In the first quarter of 2013 the CAD was 18.1

billion and at present it has gone up over 20 billion. This has hit hard on the rupee.
Strengthening of Dollar In the last six months the dollar has strengthened by 3.52
percent with the strengthening of the US economy. The dollar has been rising on
signs of growing economic momentum and talk of an early end to the Fed’s
stimulus effort. This is something which is beyond the control of the Indian
Government and it is hampering the recovery of the rupee.

Outflows of foreign capital

This is burning issue in Indian economy at

present. Due to global uncertainties and various economy crises like Europe
sovereign debt problems, FII withdrew over $4 billion from India in 2011 against
an inflow of $135 billion in 2010

Decline in Investor Confidence

India has witnessed a massive decline

in investor confidence. Overseas investors have pulled out a massive Rs 44,162
crores from the Indian capital market in the month of June, 2013 itself. The efforts
by the Ministry of Finance to infuse confidence in foreign investors have so far
failed miserably. Declining FII and weakening currency actually results in a
vicious cycle. FII outflow results in currency depreciation and currency
depreciation, on the other hand makes it less attractive for the investors to invest
in the currency.

Poor Economic Growth

The Gross Domestic Product (GDP) has hit its

lowest patch in the last 10 years. With fall of the GDP to 4.8%, it had significant
effect on the stock markets and the falling rupee. The manufacturing, mining and

20 | P a g e
the agricultural sector has faltered and investors have become cautious of
investing in India.

Rising Imports

The rising import bill is one of major concern and is has

hindered the government effort to tackle the falling rupee. Oil accounts for 35%
of the total imports and gold 11% on India’s current bill. There has been a heavy
demand for the greenback from the exporters of oil, the most prolific buyers of
dollar in the world market, thus pushing rupee lower. In the gulf countries, the
dealing of oil is done in dollars, i.e., if India has to purchase oil, it has to pay in
dollars, so for this India needs purchase dollars from USA in exchange of gold.
This has led to the further devaluation of the rupee.

Insufficient inflow of FDIs and outflow of the foreign investments

The downfall in the Indian economy has worsened the situation

and the government is unable to generate heavy capital inflows. Despite all the
government effort to allow Foreign Direct Investment (FDI), there hasn’t been
significant FDI inflow. The US federation has withdrawn some of its bond buying
programmes resulting in a sudden outflow of money that in return has left India
far behind in the race foreign investors has been pulling out of the Indian
economy. The month of May has seen a record outflow of foreign investments of
Rs. 44162 crores. With the giants like Posco pulling out of its Rs. 30,000 crore
steel plant projects in Karnataka followed by Arcelor Mittal pulling out of its Rs.
50,000 crore projects in Odisha due to delays and land acquisition delays

21 | P a g e
3.4 IMPLICATIONS OR EFFECTS OF DEVALUATION

Increase in External Debt

Cost of Production

Inflation

On banking sector

Impact on agriculture

Impact on infrastructure

Impact on common man

Impact on real estate

Companies with foreign debt

Decline in Investor Confidence

22 | P a g e
On banking sector

If an Indian company defaults on its dollar debt and goes

bankrupt then it will have a contagion effect on all the banks that have lent to that
company. The other adverse effect is that the liabilities on NRE and foreign
currency deposits may increase because of the deprecation in rupee A positive
impact for banks of the currency depreciation this year is that RBI raised interest
rate ceilings on foreign currency deposits of Indian banks.

Impact on Common Man

Fuel Students
Imported Tourism studying
goods price abroad

Impact on infrastructure

Around 15 percent of the borrowings of

infrastructure company have been in dollar term increased the price of
construction equipment and building materials results in enhanced project
execution cost. Increasing cost inputs like steel and cement are also affecting the
infrastructure building fresh investment in infrastructure could also get
overpriced.

Impact on real estate

Real estate sector is a second largest employment

generator after agriculture as demands of property declining it not only affect
economy. increases the project cost and time frame followed by the increased in
the prices of raw material. transportation. wages and salary of labour. engineers.
import of construction equipment etc, outsourced services in form of design
consultancy. Architects. Higher Inflation rate and weak economic condition make
unfavourable climate for investor.

23 | P a g e
Cost of Production

Automobiles, electronic good, airlines, fertilizers, oil

marketing companies are few sectors that will be adversely impacted by the
increase in input costs resulting from the weakening of rupee. Fuel is one of the
major inputs in most of these industries. Prices of crude petroleum has not only
been increasing but increasing at a greater rate and much of this increase can be
attributed to weakening rupee. A weak rupee will also increase under recoveries
of oil marketing companies.

Impact on
agriculture

Edible Wheat(1st)
Sugar(2nd) Rice(1st)
oil(2nd) importer

External Debt

India external debt as on June, 2013 stands at about $390

billion. And most of the debt is dominated in foreign currency i.e., most of the
money has been borrowed in foreign currency since developing countries like
India find it extremely difficult to borrow in domestic currency. As a result,
depreciation of rupee has put tremendous stress on government balances. If the
depreciation continues, government may actually find it difficult to meet its debt
obligations.

24 | P a g e
Companies with foreign debt

A falling rupee is likely to have an adverse

impact on the balance sheet of companies that have high foreign debt. According
to a CRISIL Research report “For companies in the CNX Nifty (excluding
banking and financial services), around 40% of debt is denominated in foreign
currency. All these companies are likely to face a tough time in meeting their debt
obligation.

Decline in Investor Confidence

India has witnessed a massive decline in

investor confidence. The efforts by the Ministry of Finance to infuse confidence
in foreign investors have so far failed miserably. Declining FII and weakening
currency actually results in a vicious cycle. FII outflow results in currency
depreciation and currency depreciation

Inflation

The inflation decelerated to 7.7 per cent in first half of (April-

September) of 2012-13. WPI inflation was 8.07 per cent in September 2012,
which was 8.01 per cent in August 2012. It has fallen to 7.32 per cent in October
2012, 7.24 per cent in November, 7.18 per cent December 201217 and stood at
6.62 (provisional) for the month of January 2013.

25 | P a g e
3.5 MAJOR EVENTS OF RUPEE DEVALUATION IN THE
HISTORY

1991 ECO CRISIS

CURRENT
COST PUSH
TRADE DEFICIT ACCOUNT GULF WAR
INFLATION
DEFICIT

9.44 BILLION 9.7 BILLION HIGHER POLITICAL

USD USD IMPORT INSTABILITY

DEPLETING
ECONOMIC RISE IN OIL HIKE IN
FOREIGN
INSTABILITY PRICES PRICES
RESERVES

1996

The 1966 devaluation Indian was the result of first major financial crisis
the government faced due to Continued trade deficits Indo-Pakistan War of 1965
US and other countries friendly towards Pakistan to withdraw foreign aid to India.
The drought of 1965/ 1966 which resulted in a sharp rise in prices.

2008

In the year 2008 when the real estate bubble burst out it resulted into the
real estate market crash and it led to the speculation in derivative by the market
giants which lead to a devastating effect on the economy and in respect the
devaluation of rupee.

26 | P a g e
2013

The 2013 united states debt-ceiling crisis raising centre on the federal
government debt-ceiling and its ongoing political debate in the United States
congress about federal governments spending and the national debt led to rupee
devaluation. After a promising start to the decade in 2010-11 with achievement
like GDP growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from
6.4 of GDP in 2009-10, as well as containing current account deficit to 2.6 per
cent from 2.8 per cent in 2009-10. GDP growth decelerated sharply to a nine-year
low of 6.5 per cent during 2011-12. The slowdown was reflected in all sectors of
the economy but the industrial sector suffered the sharpest deceleration which
decelerated to 2.9 per cent during 2011-12 from 8.2 per cent in 2010-11. The
centre’s finances for 2011-12 experienced considerable slippage as key deficit
indicators turned out to be much higher than budgeted due to shortfall in tax
revenues and overshooting of expenditure

3.6 WHAT RBI CAN DO?

Let's assume that exports have dwindled. imports are
on surge. Foreign investors are feeling Indian market and remittances are at all-
time low. Now everyone wants dollar but there is little supply. This will drive the
price of dollar up It's about to breach the upper limit Rs. 68 USD. RBI will step
in again and will put its dollar reserves on sale at the rate of 68 USD. This will
stop the further depreciation of rupee. Finally. as you can see. in order to be able
to stop the currency from appreciating. RBI will have to print money and for
preventing its depreciation it needs a reserve of dollar.

27 | P a g e
3.7 Steps taken by Government

Increased the FII First, it raised the This was later The all-in-cost
limit on investment ceilings on interest deregulated ceiling for External
in government and rates payable on allowing banks to Commercial
corporate debt non-resident determine their own Borrowings was
instruments. deposits. deposit rates. enhanced

Administrative measures:

Apart from easing capital controls, administrative

measures have been taken to curb market speculation.

❖ Earlier, entities that borrow abroad were liberally allowed to retain those
funds overseas. They are now required to bring the proportion of those
funds to be used for domestic expenditure into the country immediately.

❖ Earlier people could rebook forward contracts after cancellation. This

facility has been withdrawn which will ensure only hedgers book forward
contracts and volatility is curbed.

28 | P a g e
 CHAPTER 4
DATA ANALYSIS

29 | P a g e
A DEEP TECHNICAL ANALYSIS OF THE DATA
THROUGH DATA ANALYSIS

4.1
RUPEE PER DOLLAR
80

70

60

50

40

30

20

10

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
RUPEE PER DOLLAR

4.2
USD MILLION
EXPORT V/S IMPORT
250000

200000

150000
Axis Title

100000

50000

0
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Axis Title
EXPORT IMPORT 30 | P a g e
 INFLATION RATE % 4.3
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000

0 2 4 6 8 10 12 14

Inflation rate %

GROSS FICAL DEFICIT INRELATION TO GDP%

4.5

3.5

2.5

1.5

0.5

0
2015 2016 2017 2018 2019 2020

GROSS FICAL DEFICIT INRELATION TO GDP%

31 | P a g e
Fiscal deficit is shown is % to the GDP 4.4

The data below is in %4.5

CUREENT ACCOUNT DEFICIT%

0
2010 2011 2013 2014 2015 2016 2017 2018 2019
-0.6
-1.1
-1.3
-1.7 -1.8
-2.1

-2.9

-4.3
-4.8

32 | P a g e
GDP GROWTH 4.6

GDP GROWTH%
GDP GROWTH%

0
2010 2011 2012 2013 2014 2015 2016 2017 2018

4.8 INTERPRETATION OF GRAPHS

After a promising start to the decade in 2010-11 with achievement like

GDP growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4
of GDP in 2009-10, as well as containing current account deficit to 2.6 per cent
from 2.8 per cent in 2009-10. GDP growth decelerated sharply to a nine-year low
of 6.5 per cent during 2011-12. The slowdown was reflected in all sectors of the
economy but the industrial sector suffered the sharpest deceleration which
decelerated to 2.9 per cent during 2011-12 from 8.2 per cent in 2010-11. The
centre’s finances for 2011-12 experienced considerable slippage as key deficit
indicators turned out to be much higher than budgeted due to shortfall in tax
revenues and overshooting of expenditure. The gross fiscal deficit (GFD)-GDP
ratio moved up to 5.8 per cent in 2011-12 compared to the budgeted ratio of 4.6
per cent. The substantial increase in subsidies during 2011-12 on account of high
crude oil prices further impacted the deficit of the Government. The year 2011-
12, especially the second half, was characterised by a burgeoning current account
deficit (CAD), subdued equity inflows, depletion of foreign exchange reserves,
rising external debt and International Journal of Techno-Management
deteriorating international investment position. Inflation remained elevated at
over 9 per cent in the first eight months of 2011-12, before softening moderately
in December and remained sticky in the range of 6.9-7.7 percent.

33 | P a g e
CHAPTER 5
CONCLUSION, FINDINGS AND
SUGGESTIONS

BRIEF ENUMERATION OF THE CONCLUSION

OF THE STUDY AND SUGGESTIONS FOR THE
AFORESAID PROBLEMS

34 | P a g e
5.1 FINDINGS
The fall in the value of currency affects a lot of economic growth
indicators. Depreciation of rupee reduces the inflow of foreign capital, rise in the
external debt pressure, and also grow India’s oil and fertilizer subsidy bills. The
most positive impact of depreciation of rupee is the stimulation of exports and
discouraging imports and thus improving the current account deficit. But, even
after significant increase in the exports and sales in this year, Indian companies
are reporting huge foreign exchange losses due to the depreciation of Indian
rupee.

LOW
ECONOMIC
LOWER GROWTH
INVESTMENT
CURRENCY
DEVALATION
FISCAL
DEFICIT

This declines the overall profitability of these companies. As far as imports are
concerned, for a country such as India, imports are necessary. Grim global
economic outlook along with high inflation, widening current account deficit and
FII outflows have contributed to this fall. RBI has responded with timely
interventions by selling dollars intermittently. But in times of global uncertainty,
investors prefer USD as a safe haven. However, a lot depends on the Global
economic outlook and the future of Eurozone which will determine the future of
INR.

35 | P a g e
Devaluation is good or bad?

It creates an imbalance on the Balance of Payments especially for import driven

economies country like India which imports majority of essential commodities
like Oil, pays much more in terms of the value in INR imports get expensive
thereby increasing the CAD. This will further devaluate the currency This is a
welcome change for a company which is into the export of goods or services.

5.2 SUGGESTIONS:

 Government should take some measures to bring FDI and create a healthy
environment for economic growth to loosen rules for portfolio investment
in the Indian market, indicating its desire to sustain external inflows.
 There should be a ban on banks from taking proprietary position on
currency future or currency options.
 The key to tackling the issue lies in attracting sufficient foreign flows and
the best way of doing that is to make India an attractive destination with
long term variety.
 Liberalising FDI ceilings is another way to face this situation with
minimising procedural hassles and creating necessary infrastructure to
make it easy to do business.
 More and more plans should be launched for sovereign bond issue. It will
raise the position of rupee in foreign market.
 Key policy reforms such as rolling of Goods and Services Tax (GST),
Direct Tax Code (DTC), FDI in aviation and retail, Companies Bill and
diesel decontrol should be initiated properly.
 Policies should be announced by govt for targeting a band for the rupee
fluctuations.

oRaising Policy rates oEasing Capital Controls

SUGGESTION

oAdministrative measures
oUsing FOREX Reserves

36 | P a g e
5.3 What Indian Government Can do, To Bring back Positive
Vibrations in Indian Economy?

 Allow free flow of foreign investment for the development of

infrastructure and manufacturing sector.
 Restrain / discourage import of non-essential and luxury items e. g. auto
sector imports.
 Restrain /discourage export of agricultural produce and basic minerals e.
g. iron ore.
 Promote migration of skilled personnel / work force from India.

5.4 Challenges in Front of RBI:

Bank rate: bank rate raised from 8.25% to 10.25% and Limit of lending
overnight borrowing from RBI fixed to Rs75000cr. So further raising
interest rates would lead to lower growth levels.

Forex Reserves: RBI can sell forex reserves and buy Indian Rupees
leading to demand for rupee. But it may result in a deterioration of
confidence in the economy's ability to meet even its short-term external
obligations

Make Investments Attractive- Easing Capital Controls: RBI can take

steps to increase the supply of foreign currency by expanding market
participation to support Rupee.

Increasing burden of servicing and repaying of foreign debt: A major

drawback of depreciation in the value of rupee is that it will enhance the
burden of servicing and repaying of foreign debt of Indian Government

37 | P a g e
5.5 CONCLUSION: -

Even after taking few

measures by government. rupee
depreciation has abated but it still
remains under pressure. Both RBI
domestic and global conditions are
indicating that the downward pressure
on Rupee to remain in future. Thus,
RUPEE
RBI should continue its policy mix of
controlled intervention in forex
markets and administrative measures GOVERNMENT
to curb volatility in Rupee. Apart from
RBI government should take some
measures to bring FDI and create a
healthy environment for economic

growth. Thus, we can see that since 1950 besides few appreciation rupees is
depreciating against US dollar and the causes of depreciation are invariable
different.

Even after taking few measures by government if we see the

recent depreciation, Rupee depreciation has abated but it still remains under
pressure. Both domestic and global conditions are indicating that the downward
pressure on Rupee to remain in future.

Thus, RBI should likely to continue its policy mix of

controlled intervention in forex markets and administrative measures to curb
volatility in Rupee. Apart from RBI, government should take some measures to
bring FDI and create a healthy environment for economic growth. Some analysts
have even suggested that Government should float overseas bonds to raise capital
inflows.

38 | P a g e
5.6 ABSTRACT:
Despite ambiguous results from empirical studies
devaluation of currency has been used as a growth strategy by many developing
countries. Even though the study focuses on India, the results from my study can
hopefully be used in other developing countries like brazil, Bangladesh, china.
The various abstract is being depicted below in the following chart given blow.

EFFECT OF • EXPASIONARY
DEVALUATION • CONTRACTIONARY

DEVELOPING • FINANCIAL AID

COUNTRY • BY IMF

• DEVELOPING
GROWTH COUNTRY
STRATEGY • CENTRAL GROWTH
STRATEGY

39 | P a g e
 BIBILOGRAPHY

A list of all the references used to create this

particular piece of writing. This includes everything
I used in the creation of the work.

40 | P a g e
1. BOOKS: -
➢ Capital market and security law
module of the company secretary
executive program
➢ Cs professional books
➢ Economic times
➢ Indian express
➢ RBI journals
➢ Monthly economic magazines.

2. WEBSITES: -
✓ https://www.rbi.org.in/
✓ https://www.india.gov.in/
✓ https://www.sebi.gov.in/
✓ https://en.wikipedia.org/wiki/Ecological_crisis
✓ https://indianexpress.com/article/business/economy/rupee-all-time-low-
against-us-dollar-rupee-value-5369988/
✓ https://www.financialexpress.com/money/currency-devaluation-know-
how-the-falling-rupee-impacts-your-finances/1337720/
✓ https://economictimes.indiatimes.com/topic/Rupee-devaluation
✓ https://www.londonstockexchange.com/
✓ https://www.nyse.com/markets/nyse-american
✓ https://www.nasdaq.com/
✓ http://www.tradingeconomics.com
✓ http://stockmusings.com
✓ http://www.economicshelp.org/india/problems-indian-economy/
✓ http://www.mbaskool.com/business-articles/finance/8458-the-drowning-
currency-rupee-depreciation-tohurt-
✓ http://profit.ndtv.com
✓ http://profit.ndtv.com

41 | P a g e
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Anubha Dhasmana (2014) “How exchange rate changes impact Indian manufacturing
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42 | P a g e