The Indian rupee has been on a persistent slide against the US dollar, breaching psychologically significant levels and sparking concern among policymakers, businesses, and the common citizen. This depreciation is not a sudden event but the result of a complex interplay of global headwinds and domestic challenges. Understanding “why” behind the fall and its impact is crucial for navigating the country economic landscape ahead.
The US Federal Reserve’s aggressive interest rate hikes to combat inflation have made dollar-denominated assets highly attractive. These triggers foreign investors pull out funds in search of safer and higher returns in the US from emerging markets like India. This increased demand for dollars directly weakens the rupee. Adding to that, the ongoing Ukraine war and global tensions have fueled uncertainty and thus the global investors seek refuge in traditional safe-haven assets, primarily the US dollar. This “flight to safety” further exacerbates the dollar’s strength against most currencies, including the rupee. Major importer of crucial commodities like crude oil, edible oils, and coal has inflated the country’s import bill. Since these payments are made in dollars, the demand for the US currency rises sharply, putting downward pressure on the rupee. While India’s exports have been robust, the value of imports has risen even faster due to costly crude and other inputs. This has led to a significant trade deficit. Financing this deficit requires more dollars, adding to the rupee’s depreciation pressure.
The falling rupee is a double-edged sword with far-reaching consequences For the Common Citizen The one mostly impacted directly, Increased on fuel prices with a weaker rupee makes importing crude oil more expensive, which linked to higher petrol, diesel, and LPG costs. This leads transportation costs rise for all goods, from vegetables to appliances. Students planning overseas education or families with medical expenses abroad, cost rises significantly. While a weaker rupee can theoretically boost exports, the benefit is often negated by the rising cost of imported raw materials. It strains the country fiscal through higher fuel subsidies and increases the burden to India’s currency. Gains in Exporters like in IT, pharmaceuticals, and textiles as their earnings in dollars translate into more rupees. However, import-dependent sectors like electronics, chemicals, and heavy industry and companies with foreign currency see debt as their costs and liabilities soar. This squeeze on margins can affect profitability and investment.
Meanwhile, The Reserve Bank of India (RBI) is walking a tightrope. Its interventions aim to curb volatility without defending any specific rupee level, which would be costly and counterproductive. For India, this phase is the key to leverage and build long-term resilience. Promoting the rupee’s internationalization in trade settlements, fostering self-reliance in critical sectors, and maintaining robust forex reserves will be vital. While a weak rupee poses challenges, it also presents an opportunity to re-evaluate and strengthen the foundations of the Indian economy for a more self-assured future. In other words, the rupee’s fall is a symptom of a turbulent global order. Navigating not just immediate firefighting but a strategic vision to reduce external vulnerabilities and build an economy that can withstand the volatile of global capital.