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Introduction 1966 economic crisis Causes Result 1991 economic crisis Causes Result Valuation history conclusion
10

Money Devaluation

Dec 12, 2015

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Parth Upadhyay

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Page 1: Money Devaluation

Introduction 1966 economic crisis Causes Result 1991 economic crisis Causes Result Valuation history conclusion

Page 2: Money Devaluation

Since its Independence in 1947, India has faced two major financial crises and two consequent devaluations of the rupee: In 1966 and 1991

sector’s negative savings rate the government issue bonds to the RBI,

which increase the money supply

Page 3: Money Devaluation

Since 1950, India ran continued trade deficits that increased in magnitude in the 1960s.

government issued bonds to the RBI, which increased the money supply, leading to inflation.

In 1966, foreign aid-finally cut off devaluation accompanied by liberalisation

Page 4: Money Devaluation

The Indo-Pakistani War of 1965 Defence spending in 1965/1966 was

24.06% of total expenditure drought of 1965/1966

Page 5: Money Devaluation

1969, the Indian Rupee was trading at around 13 British Pence

1979, it was trading at around 6 British Pence

Finally by the end of 1989, the Indian Rupee had plunged to an all-time low of 3 British Pence

This triggered the onset of a wave of irreversible liberalisation reforms away from populist measures

Page 6: Money Devaluation

In 1991, India still had a fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of major trading partners

balance of payments problems since 1985 1990, it found itself in serious economic

trouble

Page 7: Money Devaluation

foreign exchange reserves had dried up high inflation and large government budget

deficits

Page 8: Money Devaluation

As in 1966, India faced high inflation large government budget deficits This led the government to devalue the

rupee Liberalization introduced

Page 9: Money Devaluation

Year Value of one Rupee (units per US$)

1970 7.576

1975 8.409

1980 7.887

1985 12.369

1990 17.504

1995 32.427

2000 45.000

2006 48.336

2007(Oct) 38.48

2008(June) 42.51

2008(October) 48.88

Valuation history

Page 10: Money Devaluation

India has to make balance of trade strongly positive

End the policy of making deficit budget scheme

Control inflation Providing subsidy to primary raw material &

energy Reducing cost of industry goods Though revaluation will hinder growth in

some of the industry