Thursday, September 4, 2008

India's Dependence on the US economy

It is sometimes disheartening to know that the once glorious nation, the gold reserves of which drew raiders and plunderers from around the world, and the culture of which inspired million, is so dependent on the economy of a nation built on the principals of debts, mortgaging and capitalism, and with no culture of its own. So much so that when the dollar falls with respect to the rupee, all is lost for foreign trade and exports; and when it rises, the purchasing power of the country's masses goes down. What's up?

Why is this dependence so deep? Let us try to analyze. India exports services and goods to the US. A chunk of India's GDP comes from selling these things, and a major chunk of this chunk is in trade with the US. As a result, if things don't go well within the US and people stop buying things, India's exports are hit. Now when the dollar falls against the rupee, Indian stuff in the US becomes expensive, and so the returns are fewer. What about selling to other countries? Well, they don't have that many needs (because, quite frankly, none of the other countries are as consumerists as the US). And as a matter of fact, the other countries don't have the means to import too much.

And when the Indian rupee falls against the dollar, obviously, the people can buy less. So how can we break this vicious circle of dependence?

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