If US Dollar becomes costlier in terms of Indian Rupee, it is good as well as bad for the domestic growth. How?

Dear Student,

 

If the US Dollar becomes costlier in terms of Indian Rupee, it means that the the Indian Rupee is cheaper in terms of the US Dollar. So, if earlier 1$ = 40 rupees, now, 1$ = 50 rupees, for example. Hence, the value of the US Dollar rises, and holders of US Dollars can obtain more goods from the same amount of money than before. This makes Indian exports cheaper, and gives them a competitive edge in foreign markets, and is beneficial for domestic growth. However, it also makes imports more expensive as to get 1$ worth of goods, one would have to part with 50 upees, as opposed to 40 rupees earlier, going by our example. Thus, it is bad for domestic growth.