B.Com Ist Year Devaluation Long Short Question Answer Notes
There was a widespread opposition of devaluation of Indian rupee by some economists. According to Dr. Loknathan and Dr. Gyanchand, it is a tool for increasing inflation and a dangerous game respectively. The adverse effects of devaluation are summarised as follows:
(1) Increase in Prices of Goods: Due to devaluation of rupee, there becomes rapid increase in prices of goods. Increased exports and reduced imports increase the prices of goods in the contry. This situation have a adverse affect on the standard of living of the people.
(2) Adverse Effect on Balance of Payment: The main objective of devaluation was to improve the situation of balance of payment. But, inspite of devaluation, there was not so much reduction in imports and thus the problem of imbalance of payment raised to high level.
(3) Failed to Attract Foreign Capital : To attract foreign capital in the country is also the important aim of devaluation. But in India, policy of devaluation is failed to attract foreign capital. Now the government had tried to remove obstacle in capital in flow, and this will result in increasing foreign capital investment.
(4) Increase in Loan Burden : Due to devaluation, the country has to pay more money for the payment of loan and interests. It increase the foreign debt burden of the country.
(5) Increase in Project’s Costs : Devaluation of currency
125 esults increase in import prices of inachines and other capital
ods. This led to increase in project’s costs and create obstacle in economic development,
(6) Temporary Effect on Smuggling : Smuggled goods are conerally used by high class society, thus increase in prices will not reduce the demand of such goods. Devaluation resulted in larger imports specially of gold and other high value items.
(7) Inadequate Foreign Assistance: India had devalued its currency for getting foreign assistance and loans from international monetary institutions. But after devaluation some countries have become suspicious about the stability and strength of the Indian economy. Consequently India does not get the adequate foreign assistance
(8) Pressure of International Institutions : India was forced to devalued its currency in 1991 .for getting loans from International Monetary Fund. But after that, India was also forced to follow other conditions implemented by I.M.F.
(9) Obstacle in Economic Development: Devaluation also create obstacles in economic development of the country. Import of necessary items like raw materials, machines, mineral oil, fertilizers etc. become costlier. Lack of these resources will create obstacles in the path of economic development.
Thus, it can be said that only devaluation cannot prove helpful in economic development but due to it country get indulged in web of foreign debts. It is only a temporary remedy for economic problems.
Short Answer Questions
Q.1. What do you understand by devaluation of money?
Ans. See Page 124. And 125
Q.2. Discuss the adverse effects of devaluation on the economy of a country.
Ans. See Page 124 and 125.
Q.3. Discuss the main objectives of devaluation in India.
Ans. See Page 123.
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