Growth of Indian Economy in Emerging Markets.

Indian economy is the most favorable economy in the emerging markets that have witnessed steady growth for the past one. Although the Indian economic growth appears to decline due to political and administrative failures, scholars have noted that it still has the potentials of regaining its promising glory (Narend, 2014). Many countries consider India as the most favorable region for Business Process Outsourcing (BPO), a situation that has influenced the value of the country's currency against the US dollar. This essay examines the value of the Indian currency against the US dollar for a period ranging from 2013 to 2018.

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A financial report of 2018 for India reveals that the country recorded an economic growth rate of 8.9%. This growth was attributed to factors such as the passionate service industry, better opportunities for business outsourcing and good trade relationship with international markets (Historic Look UP, 2019). The rate at which the Indian Rupee is being exchanged against the US dollar is a critical factor that influences the decisions that people make regarding foreign investments. This exchange rate affects the profitability of different firms, finance sectors, and the number of revenues that the Indian government collects (Iyer, 2018). A critical examination of the recent five years indicates that the overall position of the Indian Rupee against the US dollars has been largely stable apart from some short durations where the currency was quite unstable. For instance, the exchange rate of INR against the USD was at 61.8 INR in the year 2013 (Historic Look UP, 2019). Throughout those years, the rate of exchange remained constant. Nonetheless, in the year 2014, the rates increased slightly to 63.4 and in the year 2015, it increased to 66.2 (Historic Look UP, 2019). The rate increased slightly higher during subsequent years especially in the year 2016. However, in the year 2017, INR became stronger against the USD given the exchange rate was 63.9 (Historic Look UP, 2019). Unfortunately, in 2018, the currency suffered a significant loss against the USD since the exchange rate reached 69.4. Nonetheless, in the first quarter of 2019 fiscal year, the trend has changed as the Indian Rupee is gaining stability once again. Currently, the exchange of IRN against USD stands at 67. 8. Presently, the inflation rate in the Indian economy is lower than the rate five years ago. A report by Historic Look UP (2019) revealed that in the year 2013, the rate of inflation in India was 6.2% but currently it stands at 4.2%. Similarly, the Consumer Price Index (CPI) has witnessed an upward trend for the last decade. For instance, in the year 2015, CPI was 123.4 against 141.1 in the year 2019 (Narend, 2014). Nonetheless, Foreign Direct Investment (FDI) of the Indian economy has witnessed a declining trend for years. In the year 2016, Indian FDI decreased but did not cause severe effects on the country's currency. However, in 2018, FDI declined significantly thus lowering the rate at which the country's currency was exchanged. Essentially, from 2016, the Indian currency has remained weak against the USS and continues to lose its value. Current financial reports have indicated that the depreciating trend of the Indian currency is something that continues to happen and the situation may worsen in case necessary economic policies are not implemented.

One major industry directly influenced by the depreciation of the Indian Rupee is the Business Process Outsourcing (BPO). As the value of Indian currency decreases, the BPO industry continues to benefit because they are able to get additional revenues in terms of Indian currency (Desai, Edupuganti, Bhat, Bansal, & Harshali, 2014). Nonetheless, such benefits are short-lived because continued depreciation causes numerous detrimental effects on the BPO industry. Although the negative effects may be lighter in BPO sector than in other industries because various firms within BPO industry receive their incomes in terms of USD and are required to pay for their business expenditures including energy expenses and travel expenses in Indian currency (Desai et al. 2014). The rate of inflation has negative effects on the BPO industry. For instance, the Indian economy experiences cost-push inflation that causes factors of production such as land, labor, and capital to increase in value. Therefore, uncontrolled inflation will force the BPO industry to restructure their business plans and calculate operation costs, wages, and investments occurring in the economy.

The current economic crisis experienced in the Indian economy can be attributed to various external and internal issues. The unfavorable political climate and rampant corruption cases have made investors to make a negative judgment about the way in which the Indian economy is poorly managed (Gupta, & Sirohi, 2011). Secondly, the latest decrease in the value of Indian currency against the US dollar has contributed to the present problems witnessed in the Indian economy. Further, the continued global challenges and uncertainties continue to pile pressure on the Indian currency against the US dollars. A report by The Economic Times (2012) indicated that the economic crisis in Europe has made the Indian currency to lose its value against the USD because most of the foreign investors no longer use other currencies apart from the USD dollar in their transactions. Reportedly, the US has a debt ($14.6 trillion) that is relative equals to the one owned by Britain ($15 trillion) (Iyer, 2018). However, most countries across the world including India believe that the US dollar is the safest haven and therefore continue to use the US dollar as their preferred currency while conducting trade in foreign markets. This in return has made currencies of different countries including India to lose their values against the US dollar (Iyer, 2018). Further, the most recent performance of Exchange Traded Funds (ETF) of India depicts a decline and not the promising performance that was experienced in the past few years (Narend, 2014). This is evident from the poor performance of EPI, which many scholars and economists regard as the largest trading ETF of India. Reports have indicated that EPI started in a good note when the instability of the Indian currency was considered an issue that has insignificant impacts on the Indian economy. Nonetheless, the continued decline in the performance of ETFs and EPI in recent months has made the country's currency to lose its value against USD. Lastly, high rates of inflation in India has compelled financial institutions such as banks to raise policy rates in order to attract foreign capital in terms of interest rate arbitrages. Gupta and Sirohi (2011) noted that this has made the Indian currency to depreciate further. Short term international investors view inflation as a short-lived challenge and continue to invest in the Indian economy. Nonetheless, reports indicate that inflation in Indian is likely to prolong and thus may worsen economic prospects and the country's capital outflows thus making the currency to depreciate further (Iyer, 2018).

Economic experts believe that the present depreciation of INR against USD may last even longer. To respond to these speculations, the Indian government has formulated and restructured numerous economic policies that boost and instill the confidence of international investors. While such policies required huge financial budgets, they will make the foreign investors have confidence in the Indian government thus improving the country's economic growth and development. Ultimately, this shows a positive reflection within the Indian markets. According to Gupta and Sirohi (2011), India is capable of becoming the most favorable economy within the evolving markets. In particular, the country has brilliant and adequate resources in preferred industries such as healthcare, finance, and IT. Although the country's currency may not appreciate soon against the US dollars in a few years to come, the economy of India can achieve better growth in case its currency can remain stable.

References

Desai, N., Edupuganti, S. R., Bhat, S., Bansal, K., & Harshali, P. (2014). Impact of Rupee exchange rate on business opportunities in India. IOSR Journal of Economics and Finance, 5(6), 21-24. doi:10.9790/5933-05622124

Narend, S. (2014). Performance of ETFs and Index Funds: a comparative analysis. Department of Management Studies Indian Institute of Technology, Madras.

Historic Look UP. (2019). Historic Exchange Rates (US Dollar). Retrieved June 9, 2019, from https://www.x-rates.com/historical/?from=USD&amount=1&date=2019-06-09

Gupta, A., & Sirohi, S. (2011). Indian rupee currency analysis: INR-USD- will the rupee depreciate? : The Market Oracle: Retrieved June 9, 2019, from http://www.marketoracle.co.uk/Article28468.html

The Economic Times. (2012, May 18). Rupee volatility a concern for IT-BPO industry: Nasscom. Retrieved June 9, 2019, from https://economictimes.indiatimes.com/tech/ites/rupee-volatility-a-concern-for-it-bpo-industry-nasscom/articleshow/13269554.cms?from=mdr

Iyer, S. (2018, May 11). A weaker rupee will help and hurt these sectors of the Indian economy. Retrieved June 9, 2019, from https://qz.com/india/1272592/a-weak-indian-rupee-will-help-and-hurt-these-sectors-of-the-economy/