{"id":78946,"date":"2025-12-21T11:56:21","date_gmt":"2025-12-21T06:26:21","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=78946"},"modified":"2025-12-23T13:35:41","modified_gmt":"2025-12-23T08:05:41","slug":"rupee-depreciation-rupee-at-%e2%82%b991-usd-a-crisis-signal-or-external-shock","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rupee-depreciation-rupee-at-%e2%82%b991-usd-a-crisis-signal-or-external-shock\/","title":{"rendered":"Rupee Depreciation &#8211; Rupee at \u20b991\/USD a Crisis Signal or External Shock"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Rupee Depreciation Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Indian Rupee (INR) recently breached the psychological level of <\/span><b>\u20b991\/USD<\/b><span style=\"font-weight: 400;\">, triggering speculation about a possible slide towards \u20b9100\/USD.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The rupee <\/span><b>depreciation <\/b><span style=\"font-weight: 400;\">comes amid global trade uncertainties, especially high U.S. tariffs on Indian goods, and has sparked a debate on whether this trend is structurally worrisome or cyclical and manageable.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts present <\/span><b>divergent views <\/b><span style=\"font-weight: 400;\">on the implications for macroeconomic stability, capital flows, exports, and growth.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Key Drivers of Rupee Depreciation<\/b><\/h2>\n<ul>\n<li aria-level=\"1\"><b>External factors:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">U.S. tariffs (up to 50%) on Indian exports under the Trump administration.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Global market <\/span><b>volatility <\/b><span style=\"font-weight: 400;\">and risk-off sentiment.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Broad-based depreciation of INR against major global currencies (USD, Euro, Yen, Pound, Swiss Franc, etc.).<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Domestic structural factors:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Persistent Current Account Deficit (<\/span><b>CAD<\/b><span style=\"font-weight: 400;\">).<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Dependence on capital inflows to finance growth.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Rising <\/span><b>outward remittances<\/b><span style=\"font-weight: 400;\"> under the Liberalised Remittance Scheme (LRS) and demand for gold as a hedge.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Divergent Expert Views<\/b><\/h2>\n<ul>\n<li aria-level=\"1\"><b>View 1 &#8211; Key arguments on depreciation as a serious concern:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">A \u201cleaking rupee\u201d hampers income growth targets.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Reduces foreign portfolio investment (FPI) attractiveness due to currency risk.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Encourages capital flight via LRS and dollar-linked assets.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Shrinks domestic capital availability, increasing the cost of capital.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Weakens macroeconomic growth potential in a high-growth phase.<\/span><\/li>\n<li><b>On exports: <\/b><span style=\"font-weight: 400;\">The notion that a weak rupee boosts exports is a <\/span><b>myth<\/b><span style=\"font-weight: 400;\"> &#8211;<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">Indian exports lack pricing power (unlike Apple\/Microsoft).<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Mostly B2B exports, where buyers negotiate based on rupee cost structures.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Major exporter China succeeded on constant currency competitiveness, not depreciation.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>View 2 &#8211; Key arguments on depreciation not alarming:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Depreciation is externally driven, not due to domestic macro weakness.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">India\u2019s macroeconomic fundamentals remain strong adequate forex reserves, manageable CAD, robust GDP growth<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Seen as a temporary aberration, not a structural crisis.<\/span><\/li>\n<li><b>Opportunity angle:<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Indian Government Bonds (IGBs) are effectively 6% cheaper for foreign investors due to currency depreciation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Could attract fresh capital inflows into Indian markets.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Impact on Export Competitiveness<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Changing export structure<\/b><span style=\"font-weight: 400;\">: Shift towards value-added exports: engineering goods, specialty chemicals, pharmaceuticals, electronics.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Problem with depreciation: <\/b><span style=\"font-weight: 400;\">These sectors have high import intensity in their value chains. A weaker rupee raises input costs, potentially reducing net export competitiveness.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Outlook for the Rupee<\/b><\/h2>\n<ul>\n<li><b>Short-term pressure<\/b><span style=\"font-weight: 400;\">: Likely due to tariffs and global uncertainty.<\/span><\/li>\n<li><b>Medium-term optimism<\/b><span style=\"font-weight: 400;\">: Expected India\u2013U.S. trade deal by early 2026. Anticipated improvement in capital flows.<\/span><\/li>\n<li><b>Long-term scenario:<\/b><\/li>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Assuming 2\u20133% annual depreciation, the rupee may stay under pressure but avoid disorderly collapse.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Possibility of rupee strengthening below \u20b990\/USD if external conditions stabilise.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Challenges and Way Forward<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Managing CAD<\/b><span style=\"font-weight: 400;\">: This should be done without excessive capital inflow dependence. Strengthen export competitiveness through productivity gains, not currency depreciation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Preventing capital flight amid currency volatility<\/b><span style=\"font-weight: 400;\">: Promote stable, long-term capital inflows (FDI over volatile FPI).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Balancing export competitiveness with rising import costs<\/b><span style=\"font-weight: 400;\">: Diversify export markets and products to reduce tariff vulnerability.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Maintaining investor confidence<\/b><span style=\"font-weight: 400;\">: Maintain credible macroeconomic fundamentals &#8211; fiscal discipline, inflation control, forex buffer. Accelerate trade negotiations to reduce tariff-related shocks.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The rupee\u2019s fall past \u20b991\/USD reflects <\/span><b>a complex interplay<\/b><span style=\"font-weight: 400;\"> of external trade shocks and structural economic constraints rather than an immediate macroeconomic crisis.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While strong fundamentals provide resilience, over-reliance on depreciation as a growth or export strategy is misplaced.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">For India, <\/span><b>sustainable competitiveness<\/b><span style=\"font-weight: 400;\">, capital stability, and policy credibility\u2014not a weaker currency\u2014will determine long-term <\/span><b>economic strength<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><strong><a href=\"https:\/\/www.thehindu.com\/business\/a-weak-rupee-makes-it-harder-for-country-to-achieve-income-growth-target\/article70419621.ece#:~:text=%E2%80%9CYes%20it%20is%20a%20big,moderate%20on%20a%20higher%20base\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The rupee depreciation (\u20b991\/USD) comes amid global trade uncertainties, especially high U.S. tariffs on Indian goods.<\/p>\n","protected":false},"author":19,"featured_media":79271,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,4337,22,59],"class_list":{"0":"post-78946","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-mains-articles","9":"tag-rupee-depreciation","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/78946","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\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=78946"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/78946\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/79271"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=78946"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=78946"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=78946"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}