How depreciation of INR against USD takes place?
## Minimum Export.
When the export of goods & services is less, the incoming flow of USD in the country is less. But the demand of USD will go up (as we have to import) & hence INR depreciates against USD.
## FDI (Foreign Direct Investment).
If FDI deceases it means less USD inflow in the country & hence as per Demand-Supply, the value of USD will increase leading to depreciation of INR.
## FII (Foreign Institutional Investment).
FIIs are made by foreign investors in Indian Institutions like Stock-market. When they pull out money (due to various reasons) then there is a sudden decrease in USD & hence its demand increases & leads to depreciation of INR.
## Fiscal Deficit.
Fiscal Deficit = Expenditure – Income.
For developing countries like India Fiscal Deficit is significant & hence they have to borrow from international institutions. More fiscal deficit means poor ratings which discourages investors to make investments (as the economy may collapse if fiscal deficit is large due to insolvency of the government).
## Oil Prices.
Oil Prices are in USD. So, when we import oil from oil-producing nations we have to spend large quantity of USD. It results in decrease in supply of USD & hence it’s demand rises. It leads to depreciation of INR.
With Great Love,
Er. Amit Yadav