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What happens if 1 Rupee = 1 USD – Pros and Cons
As it is always a race in currency exchange market, 1 USD vs INR, every Indian wish is that Why cant be 1 Rupee = 1 US Dollar? This is the question quite similar to “Why cant we just print money to pay all the debt?”
There are some pros and cons to this situation. But lets see what happens if overnight or in very short period of time Dollar equals to Rupee.
First of all the high value of currency does not mean that the economy of the country is stronger. If that was the case then Bangladesh would have a stronger economy than Japan. Because 1 BDT = 1.4 Yen.
1 Rupee = 1 Dollar – Pros
Now Pros of the situation.
1. Buying Goods will be cheaper for Indians in the International Market. Because this will make imports cheaper which is good for a developing country.
2. Buying luxurious goods will be cheaper. For example, an iphone will cost just INR 650 which is cheaper than the current market rate.
3. As import prices are cheaper, then petrol prices will be cheaper resulting in cheaper transportation cost of goods around the country.
These looks like quite a good scenario. But this will not last long for the situation. Because other side of the story is completely different.
1 Rupee = 1 USD – Cons
Now Cons of the Situation
1. Exports will be expensive if value of Indian rupee and dollar are the same. Because Indian products will be expensive compared to other competing nations. Indian exports have been booming well in recent years. If it is expensive, why would any country buy from India when other competitors can offer the same at cheaper price.
2. There would be no foreign Investment if Rupee equals dollar. The primary reason for a foreign investment in India is the cheapest labour cost. Foreign companies will not be investing in India when the cost of labour is higher compared to other countries.
3. Service sector contributes almost 60% in GDP and give 27% employment in India. Investment in IT Sector and Service Sector which contributes huge amount for the Indian Economy will be gone if 1 Dollar is equal to 1 Rupee. Now as 1USD= 1INR why any company will pay to an employee USD 75,000 or Rs.75,000 per month if they can hire someone outside who will do the same work for USD 3000 or Rs.3000. Eventually people will loose job which will increase unemployment.
4. When money does not come into India, it will result in complete economic slowdown.
5. Outsourcing of job in India will be stopped.
6. Companies which are presently in India will start to move out as it will not be profitable for them. Similar situation happened in India during 2007-08 when dollar was strong around Rs.40, the imports were good. But the BPO and IT Sectors suffered a lot.
The situation of 1 Rupee = 1 USD is just not affordable for a growing or developing country.