Revaluing Indian Rupee against Foreign currencies

A few decades ago, Sri Lanka brought down the prices of several items by revaluing the Sri Lankan Rupee i.e. by changing the rate of exchange between Sri Lankan Rupee and foreign currencies, making foreign currencies cheaper. This meant that costs of all imported items came down immediately. Then the prices of domestic products which have foreign components by way of equipment, raw materials and fuels also came down.

India imports most of its requirements of petroleum and petroleum products. By changing the rate of exchange between the Rupee and US$ dollar, to say $1 = Rs.20, instead of Rs.45 now, costs of petrol, diesel oil, fuels etc. would come down by about 50%. Costs of imported coal would also come down. Costs of electricity production would fall. Costs of transport would fall heavily. With cost reductions transport, electricity and fuel oil, prices of all manufactured items will also fall. There would be all round decrease prices.

Similarly, India also imports rough diamonds and raw cashew nuts which are then processed. With a revaluation of the Rupee, there would not be a need to subsidize exporters of these and other processed goods.

With such an action, exports will be affected. Though the exporters will continue to get the same price in terms of dollars, and their cost of production would have come down, their realization in terms of Rupees will come down.  They can be compensated by way of suitable cash allowance as had been the case in 1970s.  Instead of the importers subsidizing the exporters, the government would be subsiding the exporters but to a lesser extent. Tourism industry may not be affected much as the tourists could be made to spend more in terms of foreign currency.


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