Economics

EXCHANGE RATE AND ITS IMPACT ON INDIAN outside(prenominal) flip 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 pure way. The landed estate , struggling to maintain its inborn end of growth, engagement and price level , is almost helpless when it comes to achieving its objective of inhering equilib tell if it has to intervene all the time in the forex securities industry to maintain the fixed replacement rate. Given indias repute of export (low demand elasticity in the international market) and here 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 unbowed stir on notes supply, as high-powered money (H) fall by an equivalent amount (of the foreign capital change in the market) and ordinary money in circulation ebbing by the multiple of H. in other words , it acts kindred a restrictive monetary policy. In a country where minify 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 open that the country has to go for an expenditure switching policy by way of high tariff barriers.

Hence under the head for the hills of fixed exchange rates with a continuous balance of trade shortage. There was not only a scat of wealth, but expenditure switching policies lead to a decrease in consumer surplus and a net loss in the economy . India al so followed the sterilization policy as for! malized by the IMF to nullify the effect of outflow of foreign exchange by way of increasing the reserve bank belief 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 sore economic policy of 1991, india went in for the flexible exchange rate and large convertibility in the...If you want to get a total essay, order it on our website: OrderCustomPaper.com

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