Is appreciation of the Indian Rupee against US Dollars good for the Indian economy?

Answer 1

Before I answer the question, let me provide a simple example relating to exchange rate. For example, if 1 Indian Rupee equals to 2 US Dollars today, after the appreciation of the Indian Rupee it will equal to 5 US Dollars. ( please understand that I do not know the exchange rate betwen dollars and Indian Rupee, hence this example could look weird ). The appreciation means that the Indian Rupee can purchase more US dollars. If this happens, you can look at it from the perspective of the buyer and the seller. If you are a buyer from US and would like to buy things in India, the appreciation will be disadvantages to you, as you need to use more US dollars to buy things from India. If it is disadvantage to a buyer from US, it means a seller from India will be at a disadvantage, as the price of goods sold to foreigners are now more expensive. Hence the first conclusion can be drawn, it will be bad for sellers in India and bad for buyers in US. On the other hand, an appreciation, means that more US dollars can be exchanged with the Indian Rupee. This can be good for buyers in India, as now they have more buying power. If this happens, then it will be good for sellers in US. Hence, the second conclusion can be drawn, it will be good for buyers in India and good for sellers in US. It's important to understand that the above explanation is rather theoretical. In real life we can argue, the economy consists of both buyer and seller, and there will be a shift in advantages or disadvantages when the exchange rate changes. When we consider buyers and seller, you can expand your thinking and relate to students, tourists and workers. Students coming to study in your country, or tourists visitng your country can also be affected. ( use the same analysis on buyer and seller above ). Another important thing is to consider the economy at hand. And changes in the exchange rate will also depend on the economy and its development. Exchange rates are a huge topic in some Economics topic, and a major topic in International Finance. (cheong@bgymail.gd.cn)