Indian rupee hits record low against US dollar
This week, there were reports about India’s trade deficit widening to a record $37.84 billion in November.
On Friday, Indian rupee hit a new low.
According to reports, the Indian rupee weakened to 85.10 against the US dollar.
Among the reasons are concerns about trade deficit, expected outflows from equities and persistent dollar strength.
Trade deficit
One of the factors for November' trade deficit was the soaring imports of gold, becoming the second largest item in India's import basket after petroleum.
In November, gold imports soared over four times to $14.9 billion, compared to $3.5 billion a year ago. There was also an 87% jump in vegetable oil imports, estimated at $1.9 billion, according to reports.
While India’s imports soared, exports declined. The shipments of petrol and diesel were down by half to $3.7 billion as also of gems and jewellery by 25% to $2.1 billion.
The only comforting factor was the 8% increase in non-oil exports.
Understanding trade deficit
Basically it is all about the balance of trade, the difference between the monetary value of a country's exports and imports.
Countries export as well as import goods and services.
A trade deficit happens when the dollar value of the country’s imports is more than its exports.
A big trade deficit is not good as it puts pressure on the current account balance.
Also, a rise in imports increase the demand for dollars.
Gold angle
Critics say decline in exports signals major challenges in India’s manufacturing sector.
A contrary point of view is that unexpected widening in the trade deficit has been caused by a surge in the import of gold, which is a temporary factor.
As global gold prices came down, importers increased imports in November.
Falling rupee
Experts say rupee’s decline is not an isolated event, currencies of other Asian countries have also been weakening.
In fact, rupee’s decline is said to have been driven by both global and domestic factors.
India’s economic growth slowed to a seven-quarter low in the July-September period, and trade deficit also widened.
President-elect Donald Trump has announced certain policy measures which proved positive for the dollar index.
In other words, the strength in the US dollar added to the troubles.
