Have you wondered what will happen if USD comes at par with the Indian Rupee? There is no denying that USD is one of the most powerful currencies in the world. Steeped in rich and diverse history, the United States Dollar came into existence in the year 1792 through the Coinage Act. Besides being a highly stable currency, the US Dollar is involved in the bulk of foreign-exchange trades worldwide.
Exchange rates undergo fluctuations repeatedly owing to which their valuations keep on changing from time to time. However, it must be noted that a strong currency may not always translate into supercharged economic growth. In fact, the economic performance of a country depends on a variety of factors like trade performance, investment inflows etc.
Since currencies are constantly subject to ups and downs, this gives people the opportunity to ponder the possibility of the Indian Rupee equaling the US Dollar. As surprising as it may sound, INR and USD were almost equal in value at the dawn of Indian Independence in 1947. However, things were considerably different back then compared to today’s scenario. Over the years, the purchasing power of the Rupee has witnessed a massive decline solely due to unfavorable inflation rates.
While this might be hard to imagine, the fact remains that the Indian Rupee was officially used by gulf nations like Oman, Bahrain, Qatar and Kuwait up till 1960. Let’s shed light on the pros and cons that will spring forth if history repeats itself, and INR becomes equal to the US Dollar overnight.
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Pros of INR becoming equal to USD
Here are the pros of INR equaling USD.
1. International travel will become cheaper
It is no wonder that traveling abroad to scenic holiday destinations is the dream of millions of Indians. However, lack of adequate funds acts as a major restraint against the fulfillment of such dreams. From saving money to creating a tight budget and abiding by it, all these tiring steps tend to spoil the fun of foreign trips.
But the good news is that international travel will become affordable right after 1 INR equals 1 USD. The biggest difference will be noticed in the price of flight tickets. Moreover, you will be able to relish the diverse luxuries of international destinations at a fraction of the cost.
Be it staying in a 5 star hotel, devouring foreign delicacies or renting an opulent resort, you will no longer have to spend a fortune to indulge in pleasure overseas.
2. The best talents will not migrate abroad
Highly qualified and talented people often migrate to foreign countries in the pursuit of lucrative job opportunities and better healthcare facilities. Foreign destinations promise an improved standard of living and give people the chance to widen their horizons. When Indian citizens invest their talents abroad, they are incentivized with excellent pay packages. In addition to a good salary, overseas jobs entail many benefits like insurance plans, paid holidays, tuition reimbursement etc.
Sadly, lack of good talent becomes a serious hindrance to the country’s progress. However, things will change in a jiffy when the value of INR is equal to USD. When people will start getting the same compensation in India, they will be more determined to serve their country instead of flying overseas. This way our country will not lose the best minds only due to poor remuneration packages.
3. Import costs will come down significantly
India’s foreign trade is marked by a high number of yearly imports which include mineral oils, precious metals and electrical equipment. One of the biggest benefits of Indian Rupee equaling USD is that it will cause import prices to fall substantially. To put it simply, logistics costs will come down which will in turn make imports a lot cheaper than you might expect.
Being a developing country, reduced import costs will prove to be favorable for India’s growth on a wider level. The reason being that India will be able to purchase goods from the international market without exhausting its financial resources.
4. Crude oil prices will fall
Tons of crude oil is supplied to India each year by countries like Iraq and Saudi Arabia. Besides being used for vehicle fuel generation, crude oil serves numerous purposes in the making of kitchenware, plastic, furniture etc. As import costs are lowered in India, crude oil prices will automatically face a decline.
Consequently, day-to-day transportation costs will also reduce to a great extent.
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Cons of INR becoming equal to USD
Now that you are aware of the pros, let us skim through the probable cons of the aforementioned situation taking effect.
1. Decline in foreign investments
It is a known fact that rich countries invest in developing countries owing to low investment costs and the potential to reap substantial economic benefits. Many people might assume that INR’s equivalence with USD would give a tremendous boost to capital inflows from leading countries. However, this assumption is utterly untrue. The day Indian Rupee comes at par with the US Dollar, India will witness an immediate drop in all sorts of foreign investments.
Countries will no longer see India as an investment-friendly country. Also, industries that are dependent of foreign capital inflows would collapse completely.
2. Major reduction in exports
India is a major exporter of commodities like iron, spices, tobacco, jewelry, rice etc. The country’s trading partners import commodities only because of the major price difference. Exports will see a huge reduction due to expensiveness after the US Dollar and INR become equal.
3. Leading firms will move out of India
International companies run their operations in India to reap the benefits of tax exemptions and relatively lower wages. They outsource their work to India as doing so lends them flexibility and helps cut down on costs. Leading organizations will choose to leave India in case the value of INR and USD is ever equalized. They would no longer want to bear the brunt of issuing exorbitant payslips to employees.
Companies will rather hire an equally qualified workforce outside India who would be ready to work at lesser wages.
4. Unemployment levels will skyrocket
It is no secret that the coronavirus pandemic brought businesses to a standstill and tumbled economic growth. For the first time in years, millions of people across the country were rendered jobless with literally no alternative sources of income. If the Indian Rupee becomes equal to the US Dollar, unemployment levels in India will skyrocket even further.
Even if firms hire employees in India, they would be compelled to work for peanuts. Banks will also be negatively impacted as people would be unable to pay their EMIs for the various loans they have taken.
Such a situation will eventually trigger economic slowdown and the country will face dire consequences in the long run.
One cannot deny that the Indian Rupee and United States Dollar are tied by an age-old bond of history. However, the notion of INR coming close to USD’s value, let alone becoming equal, is far from reality. Unlike the United States, India is still a developing country that requires regular foreign investments to thrive.
So even if the Indian Rupee reaches the level of the US Dollar, the situation will prove disadvantageous for our country. Amidst Covid setbacks in 2020, the INR plunged to an all-time low of ₹76.92 per Dollar. Thankfully, its value recovered at a fast pace. As of February 2022, 1 US Dollar stands at 74.70 Indian Rupee. Click here to check the live USD to INR rates.