1. Increase in imports would often increase the demand for US Dollars. Hence, the dollar appreciates and the rupee depreciates. Therefore, supply should be created by our exporters as they bring in more US Dollars from their revenues. Otherwise, bow in front of the Foreign Institutional Investors.
2. The demand for oil has increased in the international market. Globally, the price of oil is quoted in US Dollars. And India imports over 75% of oil requirements for its local market alone.
3. Dollar is strengthening against the other currencies such as Euro, Yen etc. US economy has seen an improvement in the labour market. The Euro zone is back to deterioration therefore more money is bet on US Dollars rather than Euros.
4. The Indian markets have been volatile. The investors (FIIs) are in a dilemma whether to invest in India or not. However, a national magazine showed a data of over $7.5 billion pull off during June 2013.
5. As there is increase in imports and reduction in exports, the current account deficit has increased. On the other side, due to increase in subsidies the fiscal deficit is above the comfort zone (Back to root cause 1).
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