DISSERTATION ONDISSERTATION ON

A STUDY OF IMPACT OF A STUDY OF IMPACT OF

DOWNFALL OF INDIAN DOWNFALL OF INDIAN

RUPEE AGAINST U.S. DOLLARRUPEE AGAINST U.S. DOLLAR

TABLE OF CONTENTS

58-60REFERENCE & BIBLIOGRAPHY

54-57CHAPTER-6: CONCLUSION AND SUGGESTIONS6.

52-53CHAPTER-5: FINDINGS5.

49-51CHAPTER-4: CAUSES OF DOWNFALL OF INDIAN RUPEE4.

15-48CHAPTER-3: DATA COLLECTION,INTERPRETATION AND ANALYSIS3.

5-14CHAPTER-2: REVIEW OF LITERATURE2.

1-4CHAPTER-1: INTRODUCTION 1.

Page No.Particulars

�INTRODUCTION

A STUDY OF IMPACT OF DOWNFALL OF INDIAN RUPEE AGAINST U.S. DOLLAR

INTRODUCTION INTRODUCTION

�� The value of a unit of money can be described as The value of a unit of money can be described as the goods and services that unit can buy. Each the goods and services that unit can buy. Each country has its own currency which is acceptable country has its own currency which is acceptable in the particular country. This means that if you in the particular country. This means that if you visit U.S. and want to buy something for eat visit U.S. and want to buy something for eat there you would use U.S. dollar and the rupee there you would use U.S. dollar and the rupee would not be acceptable. This means that you will would not be acceptable. This means that you will have to buy U.S. dollar; how do you buy U.S. have to buy U.S. dollar; how do you buy U.S. dollar? You pay for it in Indian rupees; so the dollar? You pay for it in Indian rupees; so the value of a single rupee is equal to the number of value of a single rupee is equal to the number of no. of U.S. dollar.no. of U.S. dollar.

�� This means each currency has an exchange value This means each currency has an exchange value when compared to another currencywhen compared to another currency

Meaning of downfall of rupeeMeaning of downfall of rupee

Now a days Rupee deprecation is one of the Now a days Rupee deprecation is one of the

buzz word in Indian and world economy. buzz word in Indian and world economy.

downfall of currency means when a downfall of currency means when a

currency decreased in value when currency decreased in value when

compared to another nations currency.compared to another nations currency.

after the peak recession time of 2008after the peak recession time of 2008--

09,indian rupee was hovering around 4409,indian rupee was hovering around 44--

46per dollar mark for almost 2 years. till 46per dollar mark for almost 2 years. till

the mid of 2011 it then started to slide the mid of 2011 it then started to slide

and breaches the 50 rupee per dollarand breaches the 50 rupee per dollar

The falling rupee is weak rupee because it The falling rupee is weak rupee because it cannot fetch more foreign currency. in the cannot fetch more foreign currency. in the opposite if the same currency can fetch opposite if the same currency can fetch more foreign exchange ,then it is a more foreign exchange ,then it is a gaining currency gaining currency

As we know when demand is greater than As we know when demand is greater than supply ,the value of the currency increase supply ,the value of the currency increase ,,

Now a days dollar is in demand that's why Now a days dollar is in demand that's why

Rupee is depreciatingRupee is depreciating

Trend of downfall of rupeeTrend of downfall of rupee

Month Monthly Avg

Sep 2012Aug-2012

54.429155.4825

Jul-2012 55.3782

Jun-2012 55.8967

May-2012 54.3665

Apr-2012 51.6947

Mar-2012 50.3149

Feb-2012 49.1191

Jan-2012 51.1348

Dec-2011 52.348

Nov-2011 50.6784

Oct-2011 49.1901

Need of the studyNeed of the study

Today our economy & global economy is much Today our economy & global economy is much more interlinked than it was earlier, due to a lot more interlinked than it was earlier, due to a lot of trade taking place between different countries of trade taking place between different countries .as we know that us is major trading partner for .as we know that us is major trading partner for many nations and biggest trading importer of many nations and biggest trading importer of goods and services From across the world change goods and services From across the world change in any direction in u.s. economy is directly going in any direction in u.s. economy is directly going to affect economy of all related countries. Indian to affect economy of all related countries. Indian rupee is falling against dollar recently exchange rupee is falling against dollar recently exchange rates reached above rupee 55 per dollar. it is a rates reached above rupee 55 per dollar. it is a widely discussed topic among public. Here in This widely discussed topic among public. Here in This project we will try to study the major impact of project we will try to study the major impact of falling rupee to the some extent. There are so falling rupee to the some extent. There are so many reasons to study the impact of downfall of many reasons to study the impact of downfall of Indian rupee against us dollar in the present Indian rupee against us dollar in the present scenariosscenarios--

•• There isThere is a shortage of dollars. In marketing terms the demand for a shortage of dollars. In marketing terms the demand for dollar is far exceeding its supply. dollar is far exceeding its supply.

•• Our exports have gone up and in 2011Our exports have gone up and in 2011--12 touched the highest 12 touched the highest figure of $300 figure of $300 bnbn but so have the imports also raised to an ever but so have the imports also raised to an ever highest figure of nearly $450+ highest figure of nearly $450+ bnbn levels. Thus the trade gap is levels. Thus the trade gap is more than $150 more than $150 bnbn and is going up. and is going up.

•• Investments also depend on the general economic environment Investments also depend on the general economic environment and that hasnand that hasn’’t been good in the past few years leading to an t been good in the past few years leading to an environment which doesnenvironment which doesn’’t inspire confidence in investors (both t inspire confidence in investors (both global and domestic) to put money in the market.global and domestic) to put money in the market.

•• A major chunk of our foreign exchange (FE) goes for importing A major chunk of our foreign exchange (FE) goes for importing

crude petroleum.crude petroleum.

•• The recent downgrading of India by Standard & Poor internationalThe recent downgrading of India by Standard & Poor internationalrating agency has resulted in flight of dollars by rating agency has resulted in flight of dollars by FII'sFII's who quit who quit from the share markets thus leading to a further shortage of from the share markets thus leading to a further shortage of dollars. One has also to factor that some Indians may be stashindollars. One has also to factor that some Indians may be stashing g

dollars illegally abroaddollars illegally abroad

Objectives of the studyObjectives of the study

�� 1. To study the impact of weakening of 1. To study the impact of weakening of

rupee v dollar on investment i.e. FDI & FIIrupee v dollar on investment i.e. FDI & FII

�� 2. To see impact on the export and import 2. To see impact on the export and import

performance of India from october2011 to performance of India from october2011 to

September 2012 considering downfall of September 2012 considering downfall of

rupee against dollar rupee against dollar

�� 3. To examine the impact of downfall of 3. To examine the impact of downfall of

rupee on cost of petroleumrupee on cost of petroleum

�Review of Literature & research design

2.0 REVIEWS OF EARLIER STUDIES2.0 REVIEWS OF EARLIER STUDIESThe review of the previous studies has been shown that the weakThe review of the previous studies has been shown that the weakening of ening of rupee is a cotemporary and significant area of research .the resrupee is a cotemporary and significant area of research .the researcher earcher

presents comprehensive review of the studies which have been conpresents comprehensive review of the studies which have been conductedducted

S.No.

Title Author’s Publicationdetails

objectives Tools Used Findings & Suggestions

1. An analytical study on Indian currency rupeeDeprecation against the U.S. dollar and its economic impact

Shelly Singal Arth Prabhand: A Journal of Economics and ManagementVol.1 Issue 1,april2012

To study probable Reasons for the deprecation of rupeeAnd to suggest policyOption to prevent thisdeprecation

Graphical Representation,Trend line

The study shows that there is direct impact of withdrawal of FII & negative BOP upon rupee depreciation so Efforts have been made to invite FDI but much more needs to be done especially after the holdback of retail FDI Without more stable source of capital inflows, Rupee is expected to remain highly volatile.

2. Depreciation of Indian currencyImplication for The Indian economy

SumanjeetSingh

Office of researchAnd publicationAmerican international University BangladeshWorking paper no. AIUB-BUS ECON-2009-04

To study the real implications of the depreciation of the rupee on the Indian economy and shows that in the long run.

Trend line The results of study is that The most positive impact of Depreciation of of rupee is the stimulation of merchandise exports and discouraging merchandise imports, given the slowdown in FII inflows in the last few,months, the trade deficit and many other reasons, it is believed that theFall in the value of the rupee was inevitable. so RBI should directlyIntervene as with the depreciation of rupee Indian economy has more to lose and very little to gain.

3. A Conceptual Study on fluctuation of rupee in relation to dollar

MehulRaithatha

ZENITH International Journal of business Economics & Management Research Vol.2 Issue 3, March 2012,

To study Rupee Dollar relationship in terms of appreciation and depreciation both. Their Pros and Cons & study valuable insights into impact of changes in currency relations on various sectors of economy, and steps needed to control it.

The study reveals that the initial success story of India was clearly based on factor driven economy based on labor arbitrage that is providing low cost labor in comparison to another country. At this stage development is sensitive to global business cycle and exchange rate fluctuation. We need to move towards being investment driven economy like improving skill of work force and make that investment which translate into tangible productivity across the board.

4. Devaluation of Indian rupee against US dollar: A Historical perspective

Bhawna Kalra International Journal of research in Economics & Social Sciences Volume 2, Issue 2 (February 2012)

To know about the trend of Indian Rupee and it exchange rate against us $ historically, concept of devaluation, steps taken by government on the major devaluations, study the real implications of the depreciation of the rupee on the our economy

Trend analysis The study shows that since 1950 besides few appreciation rupees is depreciating against US Dollar and the causes of depreciation are invariable different. Even after taking few measures by government, Thus, RBI should likely to continue its policy mix of controlled intervention in forexmarkets and administrative measures to curb Volatility in Rupee. & Government should float overseas bonds to raise capital inflows.

5. Widely fluctuating rupee and its economic impact on Indian export performance for the last ten years from 2000 to 2009

S. Rameskumarmeththa,Avinashdeosthali,Vijayshri R. meththa

International Serial Directories Volume No. 3 (2012), Issue NO.1 (January) ISSN 0976-2183

To study the rate of rupee against dollar vis a visexport performance during the last 10 years

Time series analysis

The study of trends it is reveals that rupee has been appreciated to a lot extent in the last 10 years. Also it is found that the rupee rate against us dollar was very much fluctuating. It is found that major export and imports of India are from US. So the fluctuations in the rupee rate against us dollar has impacted the trade performance of India. So Government should intervene in forex market and control the movement of rupee (appreciation against dollar) and the same time purchase dollar from foreign exchange market thereby creating artificial demand for dollar.

6. Rupee depreciation – industry impact

KrithikaSubramanian, Associate Economist

Economics Division of CARE Limited.January 9, 2012

The aim of this study is to identify vulnerabilities on forex exposures, on account of depreciation of the rupee against the dollar, across various industry segments based on a simulation analysis of FY11.

The study reveals that the rupee to settle in the range of Rs 52-54 to a dollar by the end of this fiscal. This could, ceteris paribus, turn out a positive for export-oriented industries such as IT, textiles, pharmaceuticals and gems and jewellery. On the other hand, industries based on metals, minerals and chemicals are expected to be under some pressure and the extent of hedging will determine final net loss on account of rupee depreciation.

7. Depreciation of Rupee against Dollar in Past Years and 2012

Anita July 4th 2012 To study deprecation of rupee against dollar from 1990 to 2012

Trend analysis The study reveals that Indian Rupee has depreciated on an average from 18.11 to 54.47 against US Dollar during 1990 to 2012.On June 2012 the value of Indian Rupee reached to its all time high of 57.218against US Dollar. Our Rupee has degraded more than 20% this year. The study suggests that Indian rupee can regain its lost charm, but the strategies that have to be followed will have to pay back. Government will have to increase export, decrease import and minimize the external borrowing. Thus, rupee will again stand up upholding Indian economy

8. Rupee deprecation and India’s external trade and payment since 1971

Prabhirjitsarkar

Economic and Political Weekly© 1992

To study the effectiveness of the current policy of devaluation and depreciation under the LERM in solving India's trade and payment deficits

Simple regression analysis

The study shows that during the period 1971-90 the depreciation of the rupee had no favorable effect on the dollar value and volume of exports and no contractionary effect on the value and volume of imports. Hence it had no influence on the balance of trade. Over the period of 20 years since 1971 when the rupee started to depreciate under the 'managed' float system, the dollar values of exports grew rapidly but India's share in world exports remained at a meager level.

9. The impact of rupee depreciation

C.N.M. Lavanya

November 2,2008 To study the impact of rupee depreciation against us dollar

The study reveals that for the country’s Balance of Payments: One of the consequences of depreciation of rupee is that exports realize less in foreign currency terms and imports become costlier. For a country such as India that imports essentials such as crude oil, natural resources and many capital goods, these results in a bigger current account deficit in the near term. However, a weaker rupee does make exports more competitive globally and higher exports may eventually help make up for the trade deficit.

10. Impact of Weak Rupee on Indian Economy

JyotsnaSawhney

June 10,2008 To study Impact of Weaker Rupee

The study shows that the dramatic dip in rupee’s value has a very bad impact on the economy. While many currencies have been weakening against the dollar, India has been the worst performer in Asia.. India’s crude oil import bill has become staggering. Due to rise in the Crude Oil Price, the Oil Marketing companies are shelling out 40/50 dollars more /barrel. The rise in dollar rate adversely impacts government’s efforts to curb inflation. So government should made efforts to increase in the inflow of the Capital in the country

11. Rupee Depreciation: Probable Causes and Outlook

Amol agrawal 21dec 2011 To study probable causes of rupee deprecation

Trend analysis The study reveals that Growing Indian economy has led to widening of current account deficit as imports of both oil and non-oil have risen. Despite dramatic rise in software exports, current account deficits have remained Elevated. Apart from rising CAD, financing CAD has also been seen as a concern as most of these capital inflows are short-term in nature. The study suggests that without a more stable source of capital inflows, Rupee is expected to remain highly volatile shifting gears from an appreciating currency outlook to depreciating reality in quick time

12. Fluctuations in India’s Rupee Rate and its Economic Impact

India Briefing December 5,2011 To study impact of fluctuations of rupee on various sectors

The Indian rupee is under great stress as overseas investors are paring their exposure to Asia’s third-largest economy amid international uncertainty and mounting worries over the domestic economy. The exchange rate of the Indian rupee is dependent upon the market conditions. Though, in order to sustain effective exchange rates the RBI should intervenes in the currency markets to maintain low volatility in exchange rates and remove excess liquidity from the economy.

13. Macroeconomic Fundamentals and the Indian Rupee-Dollar Exchange Rate Dynamics

Rajat Setia, ChandanSharma

National Conference on Emerging Challenges for Sustainable Business 2012,219ISBN -978-93-81583-46-3

To study a relationship between the exchange rate and fundamentals which holds in the long run, but the composition of parameters and their effect varies considerably over time.

Theoretical Models: Monetary models of the exchange rate, Flexible-price model,Sticky price model, Real interest differential model,Hooperand Morton ModelBai-Perrontest,Cointegration and Estimation of model parameters

The study shows the possibility of structural break in the data while examining the long run relationship between Rupee-dollar exchange rate and macroeconomic fundamentals. It has shown that fundamentals effect exchange rate in a specific way in a given time period. Any kind of shocks to macroeconomic environment can produce breaks, which ultimately give rise to time varying coefficients. for a developing country like India, the fundamentals do matter in formulating an exchange rate policy but their behavior is not constant over multiple periods, Therefore, the monetary policy needs to be more flexible in terms of controlling the exchange rate via monetary variables

14. Input Output Modeling of Impact of Exchange Rate Fluctuations on Indian Economy

Dr. ShriPrakashandMs. RekhaSharma

To study evaluation of foreign exchange rate fluctuation on the economy in general and export earning in particular.

Regression, Decomposition Model, Input Output Model.

The main findings of the study are as follows. Results lend credence to the input output and decomposition models developed in the study. Exchange rate has fluctuated a lot from 1990-91 to 2007-8, though fluctuations lie outside the range of stability only for four out of 18 years of the study period. Results of decomposition model of export earnings and import bills show the pivotal role of change in exchange rate,

15. Rupee-dollar exchange rate & macroeconomic fundamentals: an empirical analysis using flexible-price monetary model

C S Shylajan, Sreejesh S, and Suresh K G

Journal of International Business and Economy (2011) 12(2): 89-105

To investigates the link between Indian rupee-US dollar exchange rates and a set of macroeconomic fundamentals

Flexible-Price Monetary Model (FPMM

The study have examined the relevance of Flexible-Price Monetary Model (FPMM) in the determination of Indian Rupee-US Dollar for the period 1996 to 2010 using monthly data on exchange rate, money supply, Index of Industrial production (IIP) and interest rate. We have used JJ co integration analysis and VECM, to examine the relationships between the Rupee-Dollar exchange rate and macroeconomics fundamentals. The co integration results indicate that the exchange rate is related with the macroeconomic fundamentals in the long run, while the VECM results could not find out any short run casual relationship between the variables despite the significant error correction term.

The study reveals that trade GDP, reserve GDP and FIN. Position variable exhibit a positive relationship with FDI while exchange rate exhibits a negative relationship with FDI inflows. There is fall in the investment in the 2010-11the government is finally taking the step to relax FDI norms for multi-brand retail .if this relaxation in norms finally becomes policy, retailing giants like wall-mart & Carre Four will enter this market.

Simple and multiple regression

To evaluate the impact of FDI on the economy

Asian Journal Of Management researchVol 2 issue 2,2012

Ajay RajputAnuj JainNamita RajputRahul Garg

Relationship of FDI and growth in India: a diagnostic study

16..

5.0RESEARCH DESIGN AND METHODOLOGY5.0RESEARCH DESIGN AND METHODOLOGYResearch design & methodology is the back bone of any research sResearch design & methodology is the back bone of any research study. The tudy. The

researcher proposes the following research procedure for this stresearcher proposes the following research procedure for this study:udy:

�� 5.1SCOPE OF STUDY5.1SCOPE OF STUDY

�� In this study, the impact of downfall of Indian rupee against In this study, the impact of downfall of Indian rupee against U.S. dollar on export import, investments and cost of U.S. dollar on export import, investments and cost of petroleum have been included.petroleum have been included.

�� 5.2DURATION OF STUDY5.2DURATION OF STUDY

�� For the purposes of anglicizing the data a period of four For the purposes of anglicizing the data a period of four quarters (i.e. from October 2011 to September 2012) will quarters (i.e. from October 2011 to September 2012) will be taken into consideration.be taken into consideration.

�� 5.3COLLECTION OF DATA 5.3COLLECTION OF DATA

�� In order to examine, evaluate and analyze the study the In order to examine, evaluate and analyze the study the secondary data will be taken into considerationsecondary data will be taken into consideration

�� Secondary dataSecondary data

�� The secondary data will be collected from Web portals i.e. The secondary data will be collected from Web portals i.e. data of export & import will be collected from ministry of data of export & import will be collected from ministry of commerce, data of investment (FDI, FII) will be collected commerce, data of investment (FDI, FII) will be collected from ministry of finance, data of cost of petroleum will be from ministry of finance, data of cost of petroleum will be collected from ministry of petroleum and natural gas.collected from ministry of petroleum and natural gas.

�� & other sources of secondary data will be journals, books, & other sources of secondary data will be journals, books, news papers, and magazines news papers, and magazines

�� 5.4 RESEARCH METHODOLOGY5.4 RESEARCH METHODOLOGY�� Research methodology is an important constitute of the Research methodology is an important constitute of the

plan. In this study to fulfill the first objective the researcheplan. In this study to fulfill the first objective the researcher r will collect the information to find out the reasons of will collect the information to find out the reasons of weakening of rupee and their impact on investment from weakening of rupee and their impact on investment from earlier studies earlier studies

�� Regarding evaluating the export import performance of Regarding evaluating the export import performance of India, 4 quarterly data will be collected from ministry of India, 4 quarterly data will be collected from ministry of commerce and would be analyze by time series analysiscommerce and would be analyze by time series analysis

�� To examine the impact of downfall of rupee on cost of To examine the impact of downfall of rupee on cost of petroleum data of price of petroleum product will be petroleum data of price of petroleum product will be collected from ministry of petroleum and natural gas and collected from ministry of petroleum and natural gas and the change in the price of petroleum product and its impact the change in the price of petroleum product and its impact would be analyzed by correlation and regression modelwould be analyzed by correlation and regression model

�� 5.5TOOLS AND TECHNIQUES OF STUDY5.5TOOLS AND TECHNIQUES OF STUDY�� The appropriate statistical techniques like correlation The appropriate statistical techniques like correlation

model, regression model time series analysis etc. shall be model, regression model time series analysis etc. shall be used for analyzing the data.used for analyzing the data.

DATA COLLECTION,

INTERPRETATION & ANALYSIS

Impact on Import

15357610630.074Total

1283269.8954.4291Sep-12

1055008.7355.5235Aug-12

847434.2555.3782Jul-12

622372.2855.8967Jun-12

422173.5854.3665May-12

195761.0751.6947Apr-12

2344772.0450.3149Mar-12

2131780.2349.1191Feb-12

1934211.3751.1348Jan-12

1713586.8752.348Dec-11

1502481.4550.6784Nov-11

1304758.2449.1901Oct-11

IMPORTExchange RateMonths

CORRELATION = -0.613585973 & SEASONAL INDICES

SEASONAL ,INDICES

,

Q III, 117.74

Q IV, 166.97

Q I, 32.3

Q II, 82.97IMPORT

Interpretation

� The correlation between exchange rates and import is negative it is -0.613585973 moderate negative correlation as exchange rates decreases our import increases because decrease in exchange rate of rupee and dollar indicates we have to pay more in terms of dollar for our import .so in QIII of financial year 2011-12 monthly exchange rates are less so our import are more b but in Nov and Dec exchange rates are more but our import is also more it is due to seasonal variation because in Nov and Dec there is festive seasons like Diwali a Karwa chaut , Christmas ,New year eve so our import are more but in quarter Q IV of financial year 2011-12 there is again more export because of seasonal variation . as correlation indicates negative relationship Q I & Q II of financial year 2012-13 as exchange rates are increasing our export are decreasing. so we can say that due to depreciation of rupee our import will costlier. India’s gold imports have reached 11.5% of total imports in 2012 compared to 9% in 2011. Apart from the huge intrinsic demand for the yellow metal, expectations of rising gold prices and gold being used as a hedge against inflation are the reasons cited for increase in gold imports.

2) Impact on export

8505899.81630.074Total

77508.1754.4291Sep-12

644883.9955.5235Aug-12

522613.0455.3782Jul-12

396275.2955.8967Jun-12

257794.0554.3665May-12

122398.2751.6947Apr-12

1459280.5050.3149Mar-12

1317107.0449.1191Feb-12

1194588.0951.1348Jan-12

69954.3852.348Dec-11

931991.0250.6784Nov-11

813915.9749.1901Oct-11

EXPORTExchange RateMonths

CORRELATION =-0.555677287 & SEASONAL INDICES

SEASONAL ,INDICES

,Q III, 85.39

Q IV, 186.73

Q I, 36.51

Q II, 91.35EXPORT

Interpretation� The correlation between exchange rates and EXport is

negative it is -0.555677287 moderate negative correlation it means that if exchange rate will increase our export will decrease similarly if exchange rate will decrease our export will increase . As we know it is assumed that if rupee will depreciates exporters ill benefited but in practical life it is not possible all time .as our data indicate in q iii of financial year 2011-12 in Oct exchange rate is less our export is more in Nov, Dec, exchange rate is more and our export is also more. QIV of financial year 2011-12 indicate that exchange rate is more our export are less in the month July, Aug and in Sep as exchange rate decreases our export are increases. I, QII of financial year also indicate same relationship like previous IV quarters exchange rate is more our export are less in the month and as exchange rate decreases our export are increases. The reasons behind is that India is not a export oriented country like China and Taiwan ,India’s trade deficit for these 4 quarters is 6851710.19. Our import is more than export. So we cannot say that falling of rupee will benefited the exporters and also those countries who will pay in terms of dollar they can also have problem of lack of dollar if export will cheaper, that’s why we can say that downfall of rupee will not make exporter happier in long run

Impact on Foreign direct investment

125235630.074Total

2555254.4291Sep-12

1257855.5235Aug-12

818255.3782Jul-12

697155.8967Jun-12

722954.3665May-12

962051.6947Apr-12

819350.3149Mar-12

1087449.1191Feb-12

1028851.1348Jan-12

712452.348Dec-11

1290950.6784Nov-11

571549.1901Oct-11

FDIExchange RateMonths

CORRELATION = 0.187697214

Q III, 82.33

Q IV, 93.75Q I, 76.08

Q II, 96.58

SEASONAL INDICES FDI

Interpretation

� The correlation between exchange rates and FDI is positive although degree of correlation is low that is 0.187697214. it means that if exchange rate will increase our FDI will also increase for rupee and if exchange rate will decrease for rupee our FDI will also decrease .in Q III of financial year 2011-12 our FDI is less ,in QIV of financial year 2011-12 our FDI is less except in Jan, Feb it is more than previous month. in QI of financial year 2012-13 it is less although exchange rate is more due to seasonal variation ,controversy for permission of FDI. As we know whenever FDI comes it means that it will provide job opportunity to people, establish infrastructure that’s why government of

� Focusing on more and more foreign investment in order to protect the image of rupee and in order to gain foreign reserve .so government of India permitted 51 % FDI in retail.So in QII of financial year 2012-13 there is more FDI which indicate positive relationship between exchange rates and FDI

Impact on Foreign institutional investment

49479.983001.3630.074Total

1372.32076954.4291Sep-12

3189729.655.5235Aug-12

1850.710346.455.3782Jul-12

-839.7133.555.8967Jun-12

5855.1-1522.854.3665May-12

-2274-1865.651.6947Apr-12

-7996.28832.950.3149Mar-12

10945.425217.449.1191Feb-12

17063.612967.251.1348Jan-12

20394.5-128.552.348Dec-11

1600.8-3946.650.6784Nov-11

1189.42468.849.1901Oct-11

DebtEquityExchange RateMonths

Q III, -7.74

Q IV, 226.58

Q I, -15.68

Q II, 196.84

SEASONAL INDICESFII(EQUITY)

Q III, 187.42

Q IV, 161.78

Q I, 22.16Q II, 28.62

SEASONAL INDICES

FII (DEBT)

CORRELATION (FII EQUITY) = -0.09797061CORRELATION (FII DEBT)= -0.15171425

� Interpretation Our analysis indicates that there is negative correlation between

FII and exchange rates because both in equity and debt the reason is clear that rupee is continuous falling against dollarAs we know FIIs are among the major sources of liquidity for the Indian markets. If FIIs are investing huge amounts in the Indian stock exchanges then it reflects their high confidence and a healthy investor sentiment for our markets. But with the current global financial turmoil and a liquidity and credit freeze in the international markets, FIIs have become net sellers (on a day to day basis). The entry of FIIs in India has brought mixed consequences for our markets, on one hand they have improved the breadth and depth of Indian markets and on the other hand they have also become the major sources of speculation in testing times like these. Our analysis indicates that there is negative correlation between FII and exchange rates because both in equity and debt as exchange rates decrease FII increases &as exchange rates increases FII decreases. Q III, IV of financial year Q I of financial year 2012-13 depicts decrease in FII . The reason is clear that rupee is continuous falling against dollar so foreign institutional investors are shying in making investment in Indian capital market and whatever they have invested they are withdrawing their investment. Because they invest for short termso where there they will get return they will invest in that capital market. But in QII of financial year 2012-13 situation has improved because Indian governments inviting more and more foreign capital .51% FDI in retail is the best example of that.

Impact on Cost of petroleum

66351.24630.074Total

5800.6654.4291Sep-12

5849.3155.5235Aug-12

5372.1955.3782Jul-12

5083.6055.8967Jun-12

5659.7454.3665May-12

5892.6351.6947Apr-12

5927.5550.3149Mar-12

5540.7549.1191Feb-12

5475.6951.1348Jan-12

5488.3052.348Dec-11

5340.7650.6784Nov-11

4920.0649.1901Oct-11

COST OFPETROLEUM

Exchange RateMonths

Q III, 94.94

Q IV, 102.14Q I, 100.25

Q II, 102.61

SEASONAL INDICESCOST OF PETROLEUM

CORRELATION= 0.114397432Interpretation For analyzing the impact of downfall of rupee on cost of petroleum we have collected data of quarter III & IV of financial year 2011-12 and data of cost of petroleum of quarter I & II of financial year 2012-13 from the website of ministry of petroleum and applied correlation model between the exchange rates of rupees and cost of petroleum our analysis indicate that there is positive relationship between cost of petroleum and exchange rates although degree of correlation is low that is 0.114397432.Q III & IV of financial year 2011-2012 indicate positive relation between exchange rate and cost of petroleum as exchange rates increases cost of petroleum also increases. Q I of financial year 2012-13 shows that in the month of April as exchange rates increases cost of petroleum also increases but in may and June there is increase in the exchanger rate of rupee and dollar but cost of petroleum slightly decline we can say that it is due to seasonal variation as in may and June there is summer vacations so student don’t need petrol for their vehicles and also peoples goes on foreign trip for summer vacation so demand has deceased for petrol in these two month but in Q II of the financial year 2012-13 exchange rates are almost same in increasing manner and price of petrol is also increasing so we can say that oil prices are another significant factor in putting pressure on the rupee because oil import contributes as the biggest percentage of India ’ import .by quantity demand for crude oil is increasing year by year and by price oil is quoted in international market in dollar terms Crude oil prices have risen dramatically over the last few years, driven by strong global demand, limited spare oil production capacity, and continuing political instability political instability in certain oil producing regions. Since the price of crude oil has the most significant long-term impact on the average price of fuels, contributing to almost 50 percent of the retail price, it is not surprising to see average fuel prices significantly higher as well.

CAUSES OF DOWNFALL OF INDIAN RUPEE

�

1) Exports falling: Worsening trade deficit is bad news for the rupee as the demand for US dollars goes up. India’s trade deficit widened to $ 15.5bn in July 2012. This is significantly higher than $ 10.3bn reported in June 2012. The trade deficit occurs when a country imports more goods and services than exports. India’s July exports fell 14 per cent to $ 22.4bn while imports fell only 7.6 per cent at $ 37.9bn.2) Current account deficit could rise: S R Rao, India’s trade secretary said on Tuesday that India is unlikely to achieve the export target of $ 350bn. If that happens, India’s current account deficit could be higher than expected. This occurs when import of goods and services exceed their exports. A higher current account deficit weakens the currency.

3) Dependence on foreign flows: India would need strong foreign capital flows to finance the current account deficit. However, chances of foreign investors allocating more money to India are poor

� 4) Fiscal deficit: The government had set a target of 5.1 per cent of GDP for 2012-13 in the budget estimates in March 2012. However, analysts now expect this to hover around 6 per cent. A fiscal deficit occurs when governments spend more than they earn through taxes and other sources of income. The government borrowing from the Reserve Bank of India is typically the fiscal deficit.

� 5) Growth slows: India needs a strong growth rate to sustain high spending and boost exports. However, the global outlook for exports is not positive. Most analysts expect India to grow at less than 6 per cent in 2012-13. At the same time, a weak monsoon could push up food prices. RBI needs to cut borrowing rates rapidly to stimulate economic growth. However, it will not be able to do so as it battles to control inflation.

� 6. India’s deteriorating macro-economic conditionsAmong its emerging Asians peers, India’s Fiscal & Current Account Deficit (CAD) is the highest.India’s combined fiscal deficit, including that of state governments, has risen sharply. India’s UPA coalition government has also been accused of going slow on policy reforms. This has lead to further decrease in foreign investments into the country, especially Foreign Direct Investment (FDI), which is considered safer and better than fly-by-night Foreign Institutional Investors (FII).

�Findings

� Due to uncertain macro economic environment situation overseas investors have pulled money out of the Indian equity market but situation has improved in QII of financial year 2012-13

� As per study Current account deficit is 6851710.19. so import will be costlier & export would not be beneficial in long run because traditionally India is a trade deficit country import are always more than export .so there is lack of dollar .

� The main reason behind the fall of the rupee are an increased demand for dollars due to spurt in crude oil prices and the flight of foreign funds from the Indian market for rupee, simultaneously ,has dipped because capital inflow are down

� Our study regarding foreign direct investment indicates that outlook of Indian government and FDI is positive it is increased in the QII financial year 2012-13

� Analysis regarding cost of petroleum shows that prices of petroleum are continuous increasing as it is the part of our major import .with increase in the price of crude oil in international market; India has to pay an increased amount of dollar to import the same quantity of oil

Conclusion and suggestions

� Conclusion

The Indian Rupee has depreciated significantly against the US Dollar marking a new risk for Indian economy. Grim global economic outlook along with high inflation, widening current account deficit and FII outflows have contributed to this fall. RBI has responded with timely interventions by selling dollars intermittently. But in times of global uncertainty, investors prefer USD as a safe haven. To attract investments, RBI can ease capital controls by increasing the FII limit on investment in government and corporate debt instruments and introduce higher ceilings in ECB’s. Government can create a stable political and economic environment. However, a lot depends on the Global economic outlook and the future of Eurozone which will determine the future of INR. Because of growing differences in imports and exports, India needs to spend more and more. This is because what we are selling are fetching less dollars and whatever we are buying, are demanding more dollars from us. These results in huge loss for Indian government to compensate for losses, government t increases tax or increase prices or any other way!!!! At last, common man is at loss! The sharp rise in cost of imports is bound to be reflected in the prices of all such goods." Also, the companies that import raw material in large quantities will be forced to hike prices for the end consumer. This means that cars and two-wheeler manufacturers could realign their prices. Rupee deprecation has some serious disadvantages and if this fall is not controlled in time, it can have serious effects on the Indian growth story and also it can lead to downgrading of Indian economy by rating agencies all over the world. The recent report of standard and poor indicated how the economy can take a bad hit if the situation is not controlled immediately. The rupee certainly has a widespread impact on NRI’s to the common man of the country who is fuelling his car fuel tank. The time has come when the Reserve Bank of India and the Central Government has to intervene and take conscientious steps and frame policies reforms to control the situation.

Suggestions:� The government can take initiatives which

encourage and increase the Flow of foreign investments into India. Three recent steps taken by the government be it the pension fund FDI limit or the increase in the investment limit investors in government security and corporate bonds are the steps in the right direction.

� The government can make investments attractive and invites long term FDI debt funds in infrastructure sector. Government can consider temporary import compression in the aviation industry; retail can also attract foreign investors.

� The government should guarantee minimum exchange rate and if the market moves sharply against the exporters then they should be compensated with subsidy.

� Weaker rupee is not the only solution to boost our export; in fact we should try to consider other factors like improving infrastructure, lower interest rate for working capital finance, improvement in global demand and increasing competitiveness in global market.

� RBI should come up with measures to reduce interest rate on export credit and Public Sector banks should ensure credit to medium and small exporters under the priority sector.

� The way in which government is giving tax exemptions for service rendered in India and utilized for exports, this should be done for service rendered outside India and utilised for exports.

� Incentives should be given to control cost and to remain competitive in the global market.

� Forecasting is required for floating currencies by planners of long run horizons. It should take into account exchange rate system, forecast horizons [may be short, medium or long run] and exchange rate units. Accuracy, correlation with actual value and degree of predictability should also be taken into account.

� Government need to rework its economic policy and the firms, their business models and strategies for their success in the fluctuating foreign market.

� Currency diversification is another important alternative in which trader should trap several countries to avoid risk of currency in any particular nation. Other currencies like EURO and Yen should be given equal importance considering the future.

� Call options that is flexibility to buy currency at pre-determined rate and date and Put options that is flexibility to sell currency at pre-determined rate and date should also be made popular in India to avoid fluctuations.

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