India Insights: From Bad To Worse? The Rupee’s Decline And How It Affects Everyday Life
anand purohit
As the Indian Rupee continues to plummet in value, hitting record lows, questions arise regarding the stability of the Indian economy and its future. As of 4th February, the rupee fell to 87.48 against the US dollar. This has prompted the Indian currency to fall over 2% this year and is the worst performer among all major Asian currencies, as reported by The Economic Times. However, the upcoming monetary policy review by the Reserve Bank of India (RBI) is highly anticipated, as it will introduce key measures to address the decline of the Indian currency.
Factors Behind The Rupee’s Downfall
Concerning global factors, the US dollar’s rapid strengthening is amplifying the drastic downturn of the Indian currency. According to a report released by The Wire, “an aggressive rundown of forex reserves may reduce RBI’s ability to control markets, leading to speculative currency attacks.”
Geopolitical tensions like the Ukraine-Russia war and the conflict in the Middle East have also caused market volatility, which is a major factor. These tensions have led to rising oil prices and Red Sea shipping problems, which have also contributed to the rupee slide. This can further increase the import bills as global trade runs on the US dollar.
Domestically, India’s widening current account deficit and trade imbalances are also to be blamed. The aforementioned The Wire report also nods towards the RBI’s mercantilist approach. The Indian currency’s rigidity and inflexibility suppress natural market forces, affecting economic resilience. According to Ojaank, the urban-rural divide is also to be blamed. The rural economy in India is not growing at the same pace as its urban counterpart. Increased dependency on agriculture and declining productivity have chipped away at the overall economic growth of the nation, making the rupee more prone to economic shocks.
Impact Of The Rupee’s Downfall On Everyday Life
Rising oil prices, import costs, and inflation can have a major implication on everyday life in India. These factors have already led to a hike in crude oil prices, among other raw materials, that has affected the purchasing power, further affecting consumer sentiment. Rising prices can accelerate inflation which is already at an all-time high.
According to Business Today, the downfall of the Indian currency can also indirectly affect loans. As the rupee depreciates, items and commodities become more expensive. This will further affect the repo rate – a high repo rate means banks will increase their lending rates, making EMIs more costly.
As summer approaches, Indians planning to visit foreign countries for vacation will also have to rethink, as travel prices will increase. Stock and equity mutual fund investments will also see a fall as the rupee depreciation is causing foreign investors to pull out of Indian equities. For students planning to study abroad, this phenomenon will affect their budget too.
Have There Been Any Measures To Stabilize The Rupee?
As the rupee rates continue to fall, the RBI has buckled up to reverse the situation by pushing state-run banks to sell dollars with the hope of bolstering the currency. This method involves conducting spot transactions where to manage short-term liquidity, the central bank buys or sells the US dollar against the rupee. In addition, the RBI is also expected to cut the key repo rate significantly in the upcoming policy decision, as reported by Reuters.
India is also import-dependent in many sectors, and the rupee’s fall can adversely affect import costs. Hence, the Indian government encourages export-led growth to reduce the trade deficit. Many policy incentives have been introduced to improve domestic manufacturing and self-reliance. The biggest example of this is the ‘Make In India’ initiative launched globally in 2014. The objective of the initiative is to promote India as the most attractive manufacturing destination in the world.
These coordinated measures highlight the RBI's active strategy to curb the rupee's decline while safeguarding overall macroeconomic stability. As the situation continues to evolve, the RBI's next steps will largely hinge on shifts in global financial markets and economic conditions in the weeks ahead.
Now, as the Indian rupee continues its downward trend, all eyes are on US President Donald Trump and his next steps. According to India Today, domestic stock markets could remain under pressure as Trump’s tariffs could fuel more economic pressures.
Nirmala Sitharaman, the Finance Minister of India, spoke to the Press Trust of India about concerns over the rupee’s fall. She rejected the criticisms about the situation and emphasized India’s strong macroeconomic fundamentals.
"I am concerned but I will not accept the criticism that 'Oh Rupee is weakening!' Our macroeconomic fundamentals are strong. Rupee wouldn't be stable against all the currencies if the fundamentals were weak," she said.
While the country seems committed to stabilizing the rupee, it remains uncertain whether these policies alone will be sufficient to bring in long-term stability. The effectiveness of these policies now also depends on how geopolitical changes play out.
However, this crisis has taught important lessons to India, which will be taken into consideration by its central bank to carve out a plan that can improve the rupee rates. As India moves forward, building a more robust and adaptable economic framework will be key to weathering external shocks and ensuring sustainable growth.
