These days, we often hear in the news that the Indian rupee changed against the US dollar is getting stronger. For example, recently, 1 US dollar has reached around ₹92.6. But have you ever wondered what factors actually cause these currency values to rise or fall?”
The value of the Indian rupee keeps changing due to multiple economic and global factors
1. Exchange Rate
Whenever we travel abroad, our local currency is not accepted. For instance, if I go to the United States, I won’t be able to use Indian rupees for shopping or other expenses. I would need the local currency, so I must exchange my rupees into US dollars.
2.Inflation
Inflation is a major factor in determining a currency’s value. If inflation in India is higher than in the USA, the rupee tends to fall against the dollar.
Let’s understand this with an example: Suppose you buy a biscuit for ₹20, and after one year its price increases to ₹30. This means the internal value (purchasing power) of the rupee has decreased.
When the value of the rupee falls within the country, people in the international market also lose confidence in that currency, which leads to a decline in its value against the dollar.
3.Demand and Supply
The value of the rupee completely depends on demand and supply. When India needs more dollars for imports, the rupee becomes weaker. And when more dollars come into India through exports or investments, the rupee becomes stronger.
If India imports or buys more goods from abroad, the demand for dollars increases, which causes the rupee to fall.
Here is the list of major items that India imports from other countries and pays for in dollars.
1.Crude Oil
These are the items that contribute the most to the import bill. India imports about 85% of its oil needs from other countries.
Impact: When oil prices rise in the international market, India has to buy more dollars, which puts greater pressure on the rupee.
2. Electronics aur Semiconductors
Mobile phones, computers, and the chips (semiconductors) used in them are mostly imported from countries like China and Taiwan.
Current Status: Production in India is increasing, but for high-tech components, dollars still need to be spent.
Gold
India is one of the largest gold importers in the world. Gold is not a productive asset, but people buy it for investment and weddings.
Impact: Buying or importing more gold means more dollars go out of the country, which directly weakens the rupee. That is why the government imposes import duties on gold.