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Rupee Falls, Exports Rise?
In the wake of the free fall of the Indian rupee versus the dollar, academic discussions on depreciation and its pros and cons have taken centre stage. In this context I would like to point out an egregious error committed by the writers and contributors on this topic while explaining the direct relation between depreciation and volume of exports.
In the wake of the free fall of the Indian rupee versus the dollar, academic discussions on depreciation and its pros and cons have taken centre stage. In this context I would like to point out an egregious error committed by the writers and contributors on this topic while explaining the direct relation between depreciation and volume of exports.
It has faultily been mentioned in many economics textbooks, newspaper articles, magazines and elsewhere that depreciation of the rupee makes exported goods cheaper for foreign buyers and hence demand for our exports would increase. This line of thinking is incorrect and illogical. As an illustration, if rupee depreciates from Rs 60 to Rs 63 versus a dollar, then one fails to understand the logic behind the mechanism of the impact that it would have on the price of exported goods.
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