For a developing economy like India, where balance of trade is negative, is it good to have a weak dollar or a strong dollar?
Dollar value increases (Rupee, the local currency, weakens), imports (especially of oil) are done at an extremely high price, that leads to pressure on inflation and people (Central Bank etc.) are concerned. Personally as an exporter, we are a viable business today primarily because of a strong dollar, if the currency remained where it was two years back, our business would have made great losses and probably even shut down.
My thought process is if the local currency becomes very weak, imports would become expensive; while some imports like oil cannot be avoided, many other goods that are imported today would become viable to be produced locally, this means lesser imports in the long run, and similarly since exports would produce more revenue, more businesses would become viable and hence in the long run exports would increase. This would eventually result in positive balance of trade and the effect would be a positive spiral.
Given the short term inflationary shock and long term benefits of employment and thereby prosperity, is it generally better if the Central Bank doesn't interfere in currency devaluation and lets the Market find its own equilibrium.
The primary question stems from the worry that it is a common conception in India that with a strong dollar the country will be doomed.
If my argument is weak, can anyone explain why?