While an American with $10,00,000 is called a millionaire, an Indian with Rs. 10,00,000 is still a middle class person.
Imagine yourself buying an Iphone 6s in near future, for only Rs. 840 because $1=₹1. By this can we say Rs. 840 will have more value than it has today? Also if this happens, a bottle of coke of Rs. 10 (available today) will be sold in few Paise only. Fuel prices would be peanuts 😀
Sounds really interesting? Let’s look into the practical instances of what would actually happen if Rs.1 becomes equivalent to $1. Assuming the event took place without any drop in wages or any change in productivity, this illustration will prove you wrong if you were fascinated about the equivalence theory of Dollar and Rupee.
An Indian engineer is earning Rs. 1,00,000 per month and this guy is comparable to a person earning $1600(approx) in United States. Now, if the dollar and rupee becomes equivalent then why would an Indian engineer be paid $1,00,000 when they can get someone for $1600 ?
So, every Indian profession be it – engineer, doctor, teacher, accountants would start losing their jobs as workers outside India would be available in more cheaper rates. As people get removed from the jobs, plenty of other jobs that rely on them (restaurants, cafes, retail shops, tourism, airlines…) go kaput.
Now, Indians would be ready to start working in India at cheaper rates in order to sustain a life. Suppose, the same Indian engineer get ready to work in India at $1500 per month, but how will he repay his mortgage and EMIs on loans, education, gadgets, etc. ? At this point, banks will also suffer huge amount of losses suffered from unpaid loans. Investors would also exit.
To curb this big loss and keep the banks alive, the Government would need to print a lot of notes.
Resultant, this would spike up the rate of inflation again making Rs.xx again equal to $1. At that point, the Indian’s wage will be so low that jobs will move back again and the cycle would continue.
Ultimately the strength of a currency depends on only two things:
1# Productivity of the people -If every guy making Rs.75000 pm is able to produce 25 times more output than a foreigner making $3000, then India can enjoy $1 = Rs.1.
2# Inflation -If a country goes through a sustained low inflation in relation to other countries, its currency would move up. That means after 100 years, if your salaries stays the same at Rs.75000 pm while America’s inflation takes an average guy there’s salary to $75000, then $1 = Rs. 1
That was the reason why Government never lets Indian rupee to grow strong. It is advantageous to India, helping in keeping the exports high, wages high and imports low.