Why is the Indian Rupee Depreciating? (A Student’s Perspective)

The Indian rupee has been on a downward spiral, and today it hit a record low of 81.26 against the US dollar. The rupee is down nearly 6 per cent since January this year.

Union Finance Min­is­ter, Nirmala Sithara­man, recently said that the rupee is rel­a­tively better-placed than other global cur­ren­cies against the greenback.

The value of the Indian rupee to the US Dollar works on a demand and supply basis. If there is a higher demand for the US Dollar, the value of the Indian rupee depre­ci­ates, and vice-versa.  If a coun­try’s import is more than it’s export then this kind of con­di­tion takes place. The rupee’s fall these days is mainly due to high crude oil prices, a strong dollar over­seas, and foreign capital out­flows. As money flows out of India, the rupee-dollar exchange rate gets impacted, depre­ci­at­ing the rupee.

How does a weak rupee impact you and the economy?

Since India mostly depends on imports (includ­ing crude oil, metals, elec­tron­ics to name a few), the country makes pay­ments in US dollars. Now if the rupee is weak, it has to pay more for the same quan­tity of items. In such cases, the cost of raw mate­ri­als and pro­duc­tion goes up which gets passed on to the consumers.The falling rupee’s biggest impact is on infla­tion. The global crude prices have sus­tained at over $100 a barrel since Rus­si­a’s inva­sion of Ukraine in Feb­ru­ary this year. High oil prices and a weaker rupee will only add to infla­tion­ary pres­sures in the economy.

Last week, RBI Deputy Gov­er­nor, Michael D Patra, inter­vened and said, “We will stand for its sta­bil­ity and we are doing it. We are there in the market and we will not allow dis­or­derly move­ment of the rupee. We have no level in mind, but we will not allow jerky move­ment. That is for certain.”

Depre­ci­a­tion in the rupee does not only affect your foreign travel. It can also pinch your pocket with higher fuel prices, higher inter­est rates on your loans, and so on.  If the rupee con­tin­ues to depre­ci­ate, then to cover the economy, the RBI increases its repo rate due to which a common man’s loan inter­est increases. It also results in increase in petrol prices.  For example, if a taxi driver pur­chases petrol for ₹115 per litre one day, then after the rupee depre­ci­ates further,
he might get the same quan­tity of petrol for ₹120 per litre.

Article written by Shiv­ansh Agra­hari on behalf of the SNHS Student Website Team.