{"id":115723,"date":"2026-07-29T11:05:08","date_gmt":"2026-07-29T05:35:08","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=115723"},"modified":"2026-07-29T11:05:08","modified_gmt":"2026-07-29T05:35:08","slug":"rupee-undervaluation","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rupee-undervaluation\/","title":{"rendered":"Rupee Undervaluation: What India&#8217;s Shift Means for Exports and Competitiveness"},"content":{"rendered":"<h2><b>Rupee Undervaluation Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Indian rupee&#8217;s sharp depreciation over the past one-and-a-half years has transformed it from an overvalued currency into one that is now more undervalued than even the Chinese yuan \u2014 potentially boosting India&#8217;s trade competitiveness.<\/span><\/li>\n<\/ul>\n<h2><b>Recent Rupee Movement<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Hardening global oil prices, following renewed US-Iran hostilities, pushed the rupee past 96-to-the-dollar on July 14, where it stayed until July 24.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A pause in daily strikes since has strengthened the rupee to around 95.9, as Brent crude eased below $85 per barrel after surging past $95 on July 23.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The rupee hit an all-time low of 96.96-to-the-dollar on May 20, while Brent crude had crossed $126.4 per barrel on April 30.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">RBI Governor Sanjay Malhotra noted the rupee has become undervalued and could appreciate once the West Asia situation stabilises, as seen in past episodes of external shock-driven volatility.<\/span><\/li>\n<\/ul>\n<h2><b>Understanding Effective Exchange Rates<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>NEER<\/strong> (Nominal Effective Exchange Rate) and <strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/real-effective-exchange-rate-reer\/\" target=\"_blank\">REER<\/a> (<\/strong>Real Effective Exchange Rate) are the key indices used to measure whether a currency is over- or under-valued.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These indices track the rupee&#8217;s movement against a basket of 40 currencies of countries accounting for about 88% of India&#8217;s trade flows, with 2015-16 as the base year (value = 100).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Currency weights are derived from each country&#8217;s share in India&#8217;s total foreign trade \u2014 similar to how the Consumer Price Index (CPI) weighs commodities by consumption share.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">NEER captures the <\/span><b>rupee&#8217;s external value<\/b><span style=\"font-weight: 400;\"> against this basket without factoring in inflation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">REER adjusts NEER for inflation differentials between India and its trading partners \u2014 making it the true measure of a currency&#8217;s value.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If Indian prices rise faster than trading partners&#8217; even with a stable exchange rate, REER rises, making Indian products less competitive globally.<\/span><\/li>\n<\/ul>\n<h2><b>From Overvaluation to Undervaluation: The Data<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In November 2024, the REER of 108.03 meant the rupee was over <\/span><b>8% overvalued<\/b><span style=\"font-weight: 400;\"> in real terms.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">By June 2026, the REER of 91.26 represents an 8.7% &#8220;real&#8221; weakening \u2014 confirming the <\/span><b>rupee has moved from overvaluation to undervaluation<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Notably, the REER stayed above 100 until July 2025, marking a clear and relatively recent shift.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Future appreciation toward &#8220;fair value&#8221; (REER of 100) depends on sustainable easing of West Asia tensions, reopening of commercial shipping lanes, and absence of new geopolitical energy shocks or US trade actions.<\/span><\/li>\n<\/ul>\n<h2><b>More Competitive Than the Yuan<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">An independent measure \u2014 the Real Broad Effective Exchange Rate (RBEER), compiled by the Federal Reserve Bank of St. Louis \u2014 corroborates this trend.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">RBEER compares a country&#8217;s currency value against 64 trade partners, using 2020 as the base year.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The rupee&#8217;s RBEER fell from an all-time high of 106.1 (November 2024) to 90.15 (June 2026).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">In November 2024, the yuan&#8217;s RBEER (92.16) made it more undervalued and competitive than the rupee.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">By June 2026, the yuan&#8217;s RBEER (92.24) was higher than the rupee&#8217;s 90.15 \u2014 meaning the rupee is now a more competitive currency than the yuan.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>Why This Matters<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A more undervalued currency can theoretically:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Boost the price competitiveness of <\/span><b>Indian exports<\/b><span style=\"font-weight: 400;\"> in global markets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Make <\/span><b>domestic manufacturing more competitive<\/b><span style=\"font-weight: 400;\"> against imports.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, whether these theoretical benefits materialise in practice <\/span><b>remains to be seen<\/b><span style=\"font-weight: 400;\">, as several other factors \u2014 global demand conditions, supply chains, and trade policy \u2014 will also shape outcomes.<\/span><\/li>\n<\/ul>\n<h2><b>Conclusion<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The rupee&#8217;s transition from an overvalued to an undervalued currency \u2014 now more competitive than even the yuan \u2014 marks a significant shift with potential trade advantages for India.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Yet, translating this currency competitiveness into tangible export growth and stronger domestic manufacturing will depend on global geopolitical stability and India&#8217;s ability to capitalise on the opportunity.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/rupee-value-dollar-effect-india-import-export-10807730\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Rupee Undervaluation has improved India&#8217;s trade competitiveness, strengthened export prospects and made the rupee more competitive than the Chinese yuan.<\/p>\n","protected":false},"author":18,"featured_media":115763,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,9049,22,59],"class_list":["post-115723","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-mains-articles","tag-rupee-undervaluation","tag-upsc-current-affairs","tag-upsc-mains-current-affairs-tag","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/115723","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=115723"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/115723\/revisions"}],"predecessor-version":[{"id":115768,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/115723\/revisions\/115768"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/115763"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=115723"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=115723"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=115723"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}