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Devaluation of rupee

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The rupee was historically linked to the British pound and U.S. dollar within the IMF system of fixed exchange rates. India devalued the rupee for the first time in 1949 by 30.5%, and again in 1966 by 36.5%, to reduce its value against foreign currencies. Major devaluations also occurred in 1991 due to balance of payments issues, liberal import policies, and the Gulf War, causing the rupee to lose value against the dollar on open markets. Devaluation aims to make exports cheaper and imports more expensive, boosting exports and the tourism industry but also increasing domestic inflation through higher import prices. However, devaluation does not always effectively boost exports depending on demand elasticity and ability to substitute imports

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Devaluation of RUPEE
MEANING  Devaluation is the reduction in the value of domestic currency in relation to foreign currency.  It means deliberate reduction in the external value of national currency . It makes exports cheaper in foreign markets and imports higher in domestic market.
Rate of exchange of rupee The rupee was linked to the British pound till 1946. Rate of exchange of rupee was fixed in terms of pound. But India had a fixed external value of rupee in terms of gold or u.s.dollars. It became the member of IMF system of fixed exchange rates in respect to exchange currencies like UK pound,US dollars, ect.
RECENT DECLINE IN VALUE of RUPEE First devaluation done in sept.1949 by 30.5% and rupee came down to 30 cents. Second in june 6th by 1966 by 36.5% exchange rate came to 7.50-4.76. Third was made in 1991 july from 20-23% of major currencies. The decline was due to balance of payments, liberal policy,and gulf war.Indian rupee lost its value of dollars in open markets.
• Balance of payments • Liberal import policy • Gulf war .There has been continuous decline in value of rupee since1991-92 RBI tried to intervene in exchange markets but it failed.Indian rupee was heavily lost its value of dollar in open markets.
causes Foreign exchange reserve crisis 1991 Improvement in balance of payments Reforming the external sector IMF conditions Low ranking international agencies To prompt capital formation Devaluation by other countries To prompt tourism
conditions o Sufficient supply of exports to meet increased demand . o Simultaneous devaluation by other countries. o Price level should remain stable o Devaluation can achieved by elasticity of demand for exports ,imports o Devaluation is effective when we substitute imports with our domestic products.
effects Positive effects:  Increase in exports  Decrease in imports  Boost to tourism industry  Full utlisation of capital Negative effects:  increase in price  Short term remedy  High price for imports
Consequences of devaluation A solution to 1991 crisis to solve the problem Export expansion ,do not affect devaluation much on exports. Less effect in imports determined on policy and price factors Not a complete success; decrease in world trade and production Effect on domestic economy is unhealthy effect on domestic econmy . It affects domestic price both imports and exports price rise in rupee terms .
THANK YOU BY.. A.Divya ||.B.COM -A

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Devaluation of rupee

  • 2. MEANING  Devaluation is the reduction in the value of domestic currency in relation to foreign currency.  It means deliberate reduction in the external value of national currency . It makes exports cheaper in foreign markets and imports higher in domestic market.
  • 3. Rate of exchange of rupee The rupee was linked to the British pound till 1946. Rate of exchange of rupee was fixed in terms of pound. But India had a fixed external value of rupee in terms of gold or u.s.dollars. It became the member of IMF system of fixed exchange rates in respect to exchange currencies like UK pound,US dollars, ect.
  • 4. RECENT DECLINE IN VALUE of RUPEE First devaluation done in sept.1949 by 30.5% and rupee came down to 30 cents. Second in june 6th by 1966 by 36.5% exchange rate came to 7.50-4.76. Third was made in 1991 july from 20-23% of major currencies. The decline was due to balance of payments, liberal policy,and gulf war.Indian rupee lost its value of dollars in open markets.
  • 5. • Balance of payments • Liberal import policy • Gulf war .There has been continuous decline in value of rupee since1991-92 RBI tried to intervene in exchange markets but it failed.Indian rupee was heavily lost its value of dollar in open markets.
  • 6. causes Foreign exchange reserve crisis 1991 Improvement in balance of payments Reforming the external sector IMF conditions Low ranking international agencies To prompt capital formation Devaluation by other countries To prompt tourism
  • 7. conditions o Sufficient supply of exports to meet increased demand . o Simultaneous devaluation by other countries. o Price level should remain stable o Devaluation can achieved by elasticity of demand for exports ,imports o Devaluation is effective when we substitute imports with our domestic products.
  • 8. effects Positive effects:  Increase in exports  Decrease in imports  Boost to tourism industry  Full utlisation of capital Negative effects:  increase in price  Short term remedy  High price for imports
  • 9. Consequences of devaluation A solution to 1991 crisis to solve the problem Export expansion ,do not affect devaluation much on exports. Less effect in imports determined on policy and price factors Not a complete success; decrease in world trade and production Effect on domestic economy is unhealthy effect on domestic econmy . It affects domestic price both imports and exports price rise in rupee terms .