- Depreciation causes imports to become more costlier and it leads to higher inflation. Higher import costs leads to widening current account deficit (CAD).
- High inflation forces RBI to keep interest rates high, and thus amount is not released in banking system and cheap loans are not available which leads to slow growth.
Govt need to ensure that the current account deficit (CAD) is kept under leash else we may have a balance of payment crisis (similar to 1991) and this high CAD is further depreciating Rupee as demand is high and inflow of dollar is low. Thus govt need to make sure that we make India an attractive investment destination and for that they have to get cracking and make sure that corruption and governance issues are taken care in a positive way.