The Indian Rupee has been one of the worst performing currencies in Asia. Last week the Indian Rupee plunged to a record low when the dollar’s cost went beyond INR 70. Experts have forecast that the current account deficit will widen to 2.5% of the GDP in the current fiscal year given the woes of the Indian Rupee. Oil prices have been surging given the depreciation of the Rupee and this will trigger a larger current account fiscal deficit.
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Indian Rupee has been further pressurized by the miseries of the Turkish Lira and the concerns about China’s economy given the massive US-China trade war. Last week the Indian Rupee plunged to a record low of 70.3 to a US dollar. A multiplicity of factors have hit the Indian Rupee hard and this could bring larger economic concerns in near future.
Moody’s states that the weaker Rupee might benefit exports but the trade deficit is likely to be reversed. The trade deficit of India as stated by Moody’s Senior Analyst was at a 5 year high in July having reached USD 18.02 billion in July. As against the current account fiscal deficit of 1.5 per cent of the GDP last year, this year’s current account fiscal is estimated to hit 2.5 per cent of the GDP. He also stated that the net oil imports amounted to 2.6 per cent of the GDP in 2017 and this will only increase further.
Some experts also suggest that the depreciation of the Indian Rupee will have both a positive and negative effect on the Indian economy. But in the short run, this depreciation will only hurt India even though in the long run certain gains may be seen.
India’s neighbour Pakistan is already facing a current account fiscal deficit crisis. Pakistan now has one eye on a bailout package worth $12 billion from the International Monetary Fund. Pakistan is caught in a debt trap and the new Prime Minister, Imran Khan has promised to bring in tax reforms and austerity measures.