Reason:
The basic concept is very simple. Price falls when the demand is less. US is witnessing economic recovery => Strong demand of USD. Overseas investors pulled out money from Indian debt market and equities in less than a month due to weakness in Rupee is making things worse (over $5 billion in less than a month)
Impact:
- Costly imports
- Costlier crude oil (we're paying in Dollars)
- => Higher fuel prices
- => Inflation (fuel affects so many commodities)
- => Costlier food, gadgets, FMCG goods (fuel, imported raw material) foreign education / vacation, etc
Whats Indian Government doing?
Increasing FDI (=trying to get more $)
=> trying to bring 100% FDI in telecom, 49% in defence production from 26% etc
Other side effects:
- CAD hit a record 4.8 % of GDP in the financial year ended March 31, 2013.
- We import 80 per cent of our crude requirements and so dollars will anyhow go out of the country irrespective of whatever arrangement the RBI makes
Good News for Indian IT sector:
- Most of their money comes from exports
- About 66% of India's IT and IT-enabled service revenues come from exports
- 3 million people employed in Indian IT companies
Souces:
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