A major reason for most of the investments in our country is because the labor here is cheaper. That is because a comfortable life fulfilling basic necessities is easier to achieve here than anywhere else. We are pretty good with saving too. So we provide the cheapest labor in comparison to US. Most of the investments that come to our country come knowing our labor is cheap.
- This is the biggest incentive for foreign investors in India. If our currency’s value equals 1 USD then the price of everything in India will become equal to that of US. If they have to invest equally in both places and because of a disproportionate increase in costs they will stop investing in India and stop their work here. As a result many indian people will lose their jobs in US.
- Also if 1 USD equals 1 INR, the salary of Indian people will fall and become equal to US standards, i.e., a person earning Rs. 75000 earlier in India would now be paid around 2500-3000 dollars (approximately around Rs. 2 lakhs). If a person working in India is not ready to work for the lower salary he will be fired from his job. Many people would be fired and would leave the country for better work outside.
- As people start losing their jobs they will become willing to work for lower and lower salaries. This would make it difficult for them to pay their EMI.
- The banks would have a huge amount of unpaid loans and will go bankrupt. Investors would leave and the government will print new money to help the banks. This would push up inflation and bring the value of rupee down to around 60.
- Also our exports will get costlier as the price of things consumed here will be valued higher in USD if our currency is devalued.
- As the price of USD-INR falls it will buy lesser goods than it did previously. The supply will remain constant in the short run while the demand will fall shifting the equilibrium to a lower level and hence causing the GDP to fall.
A Different Turn
- Another scenario might be where anyone who possesses 1 rupee will become 60 times richer. India will become a rich nation. Most people in India would be rich so they will start purchasing luxuries. Salaries would increase too in terms of USD.
- The trade would be imbalanced. Students will migrate to USA for studies. People will be able to easily afford holidays to USA. Per capita income will increase and India will become a costly place to live in.
- Anything produced globally would seem cheap and prices of domestically produced goods would skyrocket. So imports will increase. Foreign investment will decrease as India will become too expensive.
- People have more money now as compared to past, so the demand for product increases, demand increase will cause increase in product price leading to inflation.
- Exports will fall as Indian products would get expensive for other countries and imports will rise. These factors will work towards pushing the dollar back to 60.
Also read “Ways To Save Your Money“.
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