Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
4) Explain the reasons behind the recently witnessed Rupee slide. What are the options available with the RBI to ameliorate the situation. Discuss.(250 words)
Why this question
The Indian Rupee has been at its historic low. It is important to analyze the reasons behind the same and also the options available with the the central bank to ameliorate the situation.
Directive word
Explain-Here we have to make something clear or easy to understand by describing or giving information about it.
Discuss- this is an all-encompassing directive which mandates us to write in detail about the key demand of the question. we also have to discuss about the related and important aspects of the question in order to bring out a complete picture of the issue in hand.
Key demand of the question
The question wants us to bring out the reasons behind the recent slide in Indian currency. It then wants us to write in detail about the possible and feasible responses that the RBI can undertake under such circumstances.
Structure of the answer
Introduction– write a few introductory lines about the recent rupee slide.
Body-
- Discuss the reasons behind the present depreciation of Indian currency. E.g The Spike in oil prices has pulled down the rupee, by pushing up dollar demand; Global Trade war fears triggered by the US and China’s retaliatory import tariffs have also weakened the Rupee; The Chinese yuan has fallen sharply in the last few sessions; This has triggered a dollar flight from many emerging economies; The Spurt in dollar outflow has pulled down most Asian currencies, including the rupee.
- Discuss the options available with the RBI. Try to list all possible options, with the more feasible ones mentioned first. E.g Signal higher rates by raising repo rates could incentivise foreign investors to invest in Indian markets; Buy bonds and infuse rupee liquidity through open-market operations; Lower cash reserve ratio or CRR that commercial banks need to park mandatorily with RBI. This could help free up more monetary resources in the system
Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue.
