Impact of currency devaluation on Indian economy and stock market.

Abstract

Fluctuations in currency of a particular nation are a natural outcome of the present system of economy because of existence of floating exchange rate system. The exchange rate of one currency versus the other is influenced by numerous fundamental and technical factors. These include relative supply and demand of the two currencies, economic performance, outlook for inflation, interest rate differentials, capital flows, technical support and resistance levels, and so on. But in recent days foliations are taking in the form of devaluation of currencies which may result in reducing the country’s exports expenditure for foreigners, whereas, foreign products are relatively more expensive for domestic consumers as well as discourage the imports. Further the devaluation of currency will improve the trade competitiveness and decrease the trade deficit. Government may use this strategy to boost the aggregate demand in the economy and decrease the unemployment. An effective devaluation of currency may raise the world demand for its exports and reduce a nation’s imports. It cause to increase in the inflow of foreign currency and it may help to become stronger on overall balance of payments account. The present study assesses the impact of Yuan (CNY) depreciation on the various facets of the Indian economy like general commodity prices, exports of various essential commodities, impact on other major industries like steel, textile, cement, pharmaceuticals etc. The present paper highlights the impact of devaluation of Chinese currency on Indian stock market in specific. The article also focuses on the measures initiated by the government of India in this direction. Finally the researcher suggested some suggestions for overcoming the present burning problem.