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Recent Downfall of the Indian Rupee
Assessing the trends in India’s balance of payments, it is argued that a combination of substantial trade deficit and a significant current account deficit financed predominantly by fickle portfolio investments could have made the rupee vulnerable to the moods of the global capital market. India’s huge dependence on oil imports along with high gold and electronic imports could also have played their roles in making the exchange rate volatile.
The exchange rate of the Indian rupee has always been an emotive issue in India and has often tended to have generated more heat than light. The current episode of the downfall of the rupee is no exception. After all, the movement of the Indian rupee/United States (US) dollar exchange rate from less than ₹ 65 in early April 2018 to almost ₹ 73 by the end of September 2018 has turned out to be substantial. Owing to the underlying issues, opinions in this context have a tendency to differ substantially. Is it entirely due to the global instability created by US President Donald Trump’s sabre-rattling of the trade war with China? Is it a result of the beginning of tightening monetary policy cycle in the US? Is it a reflection of the contagion of the crisis in Turkey? Or, is it an outcome of the inherent weaknesses of the Indian economy with high imports of gold and huge dependence on oil?
Dollar Strengthening
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