Fall of the Rupee

In the September of 2018, the Indian Rupee took a hit against the American Dollar  causing it to reach a new low of Rs. 74  for 1 USD (approx.) When the USA waged a war of exports against China, many importing countries faced the casualties, causing a depreciation in their respective currencies, the Russian Ruble, the Japanese Yen, the Turkish Lira, the Indonesian Rupiah, the Philippine Peso, to name some, who took the biggest tanks, along with India of course.

Add to that the price per barrel of oil, having increased rapidly in 2018 also hit its four-year high of 86 USD in October. India being a major consumer of crude oil,  importing up to 80% of its oil, couldn't possibly recover from its recent hard-hitting fall with another looming obstacle in the way. With many other undercurrents at work such as a high trade deficit, increase in the global demand for the dollar, disinvestment of Foreign Investors, a storm was being brewed, a storm that caused the Rupee to go down a seemingly unending downward spiral before its lowest ever on 10th October, 2018.

It is to be noted that external factors aren't the only factors that have caused the Rupee to go down the path it did. The anticipation of elections along with increasing political tensions did certainly have a part to play. However, this chain of events leading India to its record low, did not impact the economy with a magnitude one would expect as it was not due to a high internal imbalance, but mainly because of external competition and in relation to the appreciating dollar. But it is certainly not inconsequential, as it is certainly expected to cause repercussions in its wake.

The fuel prices within will probably increase with no sign of a subsidy or reduction in duties applicable, it is the only plausible course. Foreign travel will expectedly see a significant decrease alongside growingly expensive abroad education. Foreign Private Investment is predicted to fall furthermore, as the investors divert their funds towards the American economy. There is also the threat of rising inflation and interest rates, however, as we can see, RBI stays adamantly against hiking the interest rates, determined to keep inflation in control, but not without facing consequences of its own. The resignation of the Governor of RBI certainly could add a fuel to an already raging fire.

On the other hand, it can be an opportunity in disguise. China has been devaluating its currency to increase its export for years. It is a good chance to take and increase the exports in such a time when the rupee is so cheap against the dollar. However as seen before, Indian Rupee isn't the only currency to have faced depreciation and thus the entire charade may be a threat of emerging markets crisis.

It is uncertain how long it will take India to recover, if it does at all. With 70 rupees for 1 USD as the current rate, the future of the Indian rupee will unravel itself as it is yet to be seen who wins the trade wars and who reaps the benefit.

Isha Gokhale
SYBA

Icon Credits:
Savli Pagdhare, FYBA
Siddhi Tirlotkar, FYBCom