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2) The falling value of rupee will lead to several problems in Indian economy. Examine the causes of the problem and suggest steps to deal with this challenge?(250 words)

Topic– Indian economy: Issues

2) The falling value of rupee will lead to several problems in Indian economy. Examine the causes of the problem and suggest steps to deal with this challenge?(250 words)

The hindu

Why this question

The article talks about the reasons why rupee has been depreciating in value, the impact of falling value of rupee on inflation and other economic factors and ways in which the current slide can be attested. Since the falling value of rupee, and rising oil prices have been dominating the news headlines for some time now, getting into the depth of reasons behind the same would be useful for mains.

Key demand of the question

The question expects us to answer three aspects

  • The reason behind the falling value of rupee
  • The impact of the falling value of rupee
  • Steps to arrest the slide in rupee’e value or mitigate the ill effects of rupee’s slide

Directive word

Examine – When you are asked to examine, you have to probe deeper into the topic,  get into details, and find out the causes or implications if any .

Structure of the answer

Introduction – Explain the issue in brief.

Body

  • Discuss reasons for the falling value of rupee
    • External factors such as rising interest rates in USA, which means that flight of capital has taken place from developing countries like India. Discuss that dollar has appreciated against other currencies
    • Developing economies are typically even harder hit since global portfolio investors tend to withdraw from these markets, perhaps because their economic or political fundamentals are relatively more unstable. Countries such as Turkey and South Africa have experienced significantly higher rates of devaluation than India.
    • Increasing crude oil prices which is impacting our CAD etc
  • Discuss the impact of falling rupee value on inflation, cad, price of essential imports etc
  • Suggest steps through which the after effects can be mitigated or the slide in the value of rupee be mitigated – RBI intervening by offloading large amount of dollars,  raise interest rates, borrow from NRIs by floating NRI bonds etc

Conclusion – Give your view on the impact being faced as a result of sliding value in rupee and discuss the way forward.