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Depreciation of Rupee
The reasons behind the rupee’s decline is:
“DEPRECIATION” → Each Letter Represents a Key Factor
Internal Factors:
• D → Deficit (Fiscal & Trade) – Persistent fiscal and trade imbalances weaken the rupee.
• E → Expensive Imports – Rising crude oil and essential imports increase foreign currency demand.
• P → Policy Uncertainty – RBI’s inconsistent exchange rate policies create market instability.
• R → Rising Inflation – Higher prices reduce the real value of the rupee.
• E → Export Struggles – Inflation-driven production costs make Indian exports less competitive.
External Factors:
• C → Capital Outflows – Foreign investors withdraw funds due to global uncertainties.
• I → Interest Rate Hikes (US Fed) – Aggressive US Fed rate hikes strengthen the dollar.
• A → Ailing Global Economy – Slowdown in global demand weakens India’s exports.
• T → Tensions Geopolitically – Conflicts (e.g., Russia-Ukraine) increase energy prices, worsening India’s trade balance.
• I → Investor Sentiment Weakening – Global risk aversion leads to foreign capital flight.
• O → Oil Price Surge – Higher crude oil prices increase the trade deficit.
• N → Negative Growth Shocks – Global recessions reduce capital inflows into emerging markets like India.
“DEPRECIATION” = The Rupee’s Fall
To make the mnemonic more impactful and negative consequences of a falling rupee:
Mnemonic: “CRISIS” → Rupee Depreciation Triggers an Economic CRISIS!
Each letter represents a key consequence:
• C → Costlier Imports – Crude oil, electronics, and raw materials become expensive, worsening the current account deficit.
• R → Rising Inflation – Higher import costs push up domestic prices as businesses transfer costs to consumers.
• I → Investor Flight – Foreign investors lose confidence and withdraw capital from Indian markets.
• S → Shrinking Export Gains – While a weaker rupee makes exports competitive initially, inflation-driven high input costs negate the advantage.
• I → Increasing Debt Burden – External debt in foreign currency becomes more expensive, raising repayment burdens.
• S → Stock Market Volatility – Reduced foreign investments and economic uncertainty cause market instability.
“CRISIS” → Falling Rupee Sparks an Economic Crisis!
Measures to restore the value of the rupee
“R-E-S-T-O-R-E” → Efforts to RESTORE the Rupee!
Each letter represents a key measure:
Monetary Policy Measures:
• R → Reserves Utilization – RBI intervenes by selling forex reserves to balance demand-supply.
• E → Enhancing Interest Rates – Raising repo rates attracts foreign investments, strengthening the rupee.
• S → Swap Agreements – Bilateral currency swaps reduce reliance on the US dollar.
Fiscal Policy Measures:
• T → Tackling Import Dependency – Promoting domestic production of high-demand imports (e.g., crude oil substitutes).
• O → Optimizing Exports – Incentives and subsidies encourage exporters, improving the trade balance.
• R → Robust Infrastructure – Developing logistics and supply chains lowers production costs, boosting competitiveness.
• E → Encouraging Foreign Investments – Implementing investor-friendly policies to attract stable FDI.
“RESTORE” → A Strategy to Bring Stability to the Rupee!
BY Mnemonics Notes UPSC
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