Economics

EXCHANGE RATE AND ITS IMPACT ON INDIAN outside(prenominal) traffic Following the over-valued, fixed flip set policy of 1 US $ = rs 35-36, india has learnt the lesson of perpetual intervention in the BOP problem, the voiceless way. The farming , struggling to maintain its inborn end of growth, intricacy and price level , is almost helpless when it comes to achieving its objective of familiar counterpoise if it has to intervene all the time in the forex food market to maintain the fixed re-sentencing account. Given indias study of export (low demand elasticity in the international market) and present and now (inelastic in nature), intervention in the forex market amounted to a continuous selling of dollar (or forex) in the market. This has a immediately stir on cash supply, as high-powered money (H) fall by an equivalent amount (of the foreign currentness change in the market) and ordinary money in circulation decline by the multiple of H. in other words , it acts resembling a restrictive monetary policy. In a country where reduce and low growth rate is a perennial problem, much(prenominal) a restrictive monetary policy is counter-productive. Faced with a continuous problem of shortage in the BOP , our planners realized that the country has to go for an expenditure switching policy by way of high tariff barriers.

Hence under the manipulation of fixed exchange rates with a continuous balance of trade deficit. There was not only a trend of wealth, but expenditure switching policies lead to a decrease in consumer surplus and a net loss in the economy . India also followed the sterilization po! licy as authoritative by the IMF to nullify the effect of outflow of foreign exchange by way of increasing the reserve bank popular opinion to various sectors, especially to the govt, continuous credit to the central govt, which amounts to deficit financing has a severe drawback- that of being inflationary. With the advent of the raw(a) economic policy of 1991, india went in for the flexible exchange rate and large convertibility in the...If you want to get a enough essay, order it on our website: OrderCustomPaper.com

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