Fluctuations in dollar and its impact in the Indian economy

During 1970-80, India which was consider isolated from the world economy , It had very less impact of dollar fluctuations because it was more relied on import but post 1980,India started to indulge more and more in exports,and now trade among India and US has begun.When we see US as an importer,it has huge demand for the products like ready made garments, textiles, tea, diamonds that are mainly produced by India, and when we see India as an importer then India has huge demand for the products that are produced in US, euro ope, Iraq etc. like oil,petroleum products,pharmaceuticals etc.

But how fluctuations in dollar has huge impact in the Indian economy?

Fluctuations in currency occurs due to demand and supply mismatches of the currency, if supply of currency exceeds the demand then it value depreciates, on the other hand if demand exceeds supply then its value appreciates. In the recent global meltdown we had seen that US was facing economic crunch, the demand in the US had fell down, drop in demand had badly hurt Indian export sectors, our supply exceeds the demand in US therefore Indian currency rupees in 2008-09 touched the $1=50Rs and in 2007 when our economy was booming, foreign investors had huge appetite in our country, export sector had huge demand, the rupees appreciated w.r.t dollar. and was around 1$=39 rupees.

We have seen that in 2007 the rupees was appreciating and demand for dollar was weakening, reason being that supply of dollar was increased in India because India was a favourite destination for the foreign investors, export sector was flourishing , we had huge supply of dollars that made Indian Rs strong. we were getting dollar from various corner like NRI, economic commercial borrowing (ECB), foreign inventors(FDI and FII) and export sectors.

When Rs appreciates, import sector has positive impact, the importer appreciates.The explanation is for instance $1 moves from 45 to 40 Rs then import becomes cheaper. for importing the goods worth 100 dollar India will pay 4500 Rs (if $1 =45Rs), and in second case(if $1=40Rs) for the same transaction India will pay 4000 Rs.
In contrast when Rs depreciates the exporter appreciates-The explanation is for instance $1 moves from 40 to 45 Rs for exporting the goods worth $100 ,exporter will will get 4000 Rs (if $1 =40Rs), and in second case(if $1=45Rs) for the same transaction exporter will get 4500 Rs.

so fluctuation in currency impacts
Export sector
Import sector
That results changes in Indian economy .