By Brajesh Kumar Tiwaric
If a country’s currency is stronger than other currencies, the country’s economy is considered strong. The value of most things exported is paid in dollars. The US dollar has the status of a global currency, therefore the value of the rupee against the dollar shows whether the Indian currency is strong or weak. The rupee hit a record low against the US dollar on July 1, trading at 79.11 per dollar. The rupee has been staggering since the beginning of the year. This is the largest ever drop in the rupee and the rupee has reached its all-time low.
Since independence, the rupee has fallen in value almost 20 times: in 1948 there was 1 dollar available for 4 rupees and then there was no debt on the land. When the first five-year plan was implemented in 1951, the government started taking loans from abroad and after that the value of the rupee also started to decline continuously. The value of the rupee is completely dependent on supply and demand, and imports and exports also have a direct effect. India imports more than it exports. A country that imports more than it exports has a greater demand for dollars. India is one of the major importers of crude oil, importing about 80 percent of its oil. Undoubtedly, the rising prices of crude oil in the international market are the main reason for the depreciation of the rupee.
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While the central government has pledged to do everything it can to stop the fall of the rupee, the government will now need to take concrete and firm steps. If the government tries to make its economy dependent on oil, we can save a large part of the foreign reserves and for that we must all consider alternatives to oil. It’s time for electric vehicles to need attention. The government must take strategic steps to control imports and increase exports. It is time to effectively implement the ‘Make in India’ program, which is lagging far behind its effective contribution even after eight years.
Today, the manufacturing sector’s share of India’s GDP is 13 percent. Corona alone is not responsible for the Indian manufacturing sector. The manufacturing industry accounts for 29 percent of China’s GDP. Other Asian countries with a larger share of manufacturing in GDP than India are South Korea (26 percent), Japan (21 percent), Thailand (27 percent), Singapore and Malaysia (21 percent), Indonesia and the Philippines (19 per cent). It is true that the government is striving to create a competitive, dynamic environment to ensure sustainable economic growth and increase its relevance in international trade and the result is also visible in some sectors. A striking example is the development of corona vaccines by Indian companies as a source of indigenous talent.
India has quickly taken its place in the Ease of Doing Business index released by the World Bank, India’s EDB ranking was 134th in the year 2014 and has risen to 63rd in the year 2021. India ranks 43rd in the published Global Competitiveness Report Index by the Geneva-based World Economic Forum, up from 60th in 2014 But even the reforms across all these ranks have not revitalized the manufacturing sector or provided the required support to the Make in India campaign . Despite all efforts to promote self-employment, unemployment has broken the record of 4 decades.
The manufacturing sector is constrained by strict regulations and policies, and the industry struggles for large amounts of paperwork, labor, land or environmental permits. Tax and customs policies are so complicated that it is cheaper to import things than to manufacture household appliances. India may in the future make itself the next ‘global factory’, which China is fed up with anyway and looking for alternative production hubs.
The manufacturing industry must be freed from cumbersome rules. Certainly, by such effective steps, the depreciation of the rupee against the dollar can be checked. If we also start using native goods, the cost of importing foreign goods will be saved. India has no time to rest. For India to become a $5 trillion economy by 2025, we need to export at least $2.5 trillion worth of goods and services, as exports currently make up about 25% of the total gross domestic product (GDP).
(Author Brajesh K. Tiwari is an associate professor with JNU at the School of Management. The views expressed in the article are the authors’ own and do not reflect the official position or policies of FinancialExpress.com.)