India proudly claims to be the fourth largest economy in the world, yet the Indian rupee continues to weaken against the US dollar, recently touching the shocking mark of ₹90 per dollar. Many citizens are asking a tough but necessary question: If India is truly among the world’s largest economies, why is its currency in such poor health? And perhaps more importantly, whose failure is this?
This debate isn’t merely political; it reflects a deeper structural dilemma between rapid GDP expansion and a fragile currency. To understand the Indian rupee falling, we must look beyond speeches, slogans, and political narratives, and instead focus on the real forces driving the rupee vs dollar crisis.
The Real Reasons Behind Rupee Depreciation
The rupee’s continuous fall is a result of several interconnected economic realities:
1. The US Dollar Has Become Stronger Globally
The dollar is strengthening due to:
-
Global investors shifting money into safer American bonds
-
Geopolitical uncertainties pushing the world towards dollar-denominated assets
This isn’t just India’s problem. Most global currencies — yen, pound, euro — have weakened.
But India’s currency has fallen more sharply, which signals deeper domestic concerns.
2. India’s Massive Trade Deficit
India imports more than it exports, especially:
For every dollar India needs to spend on these items, more rupees must be exchanged — pushing the rupee down further.
When imports rise and exports fail to catch up, the trade deficit widens, putting continuous pressure on the Indian rupee.
3. Heavy Dependence on Foreign Investors
Over the past decade, India has relied extensively on:
-
Foreign Portfolio Investment (FPI)
-
Foreign Institutional Investors (FII)
When these investors sell shares and take money back to the US or Europe, India loses dollars from its reserves.
In recent months, FIIs have withdrawn billions, accelerating the rupee slide.
4. Rising Crude Oil Prices
India imports nearly 85% of its crude oil.
When global oil prices increase, India must spend more dollars, weakening the rupee further.
This is a structural vulnerability that no government has fully addressed.
The Contradiction: Fourth Largest Economy but a Weak Currency
Here lies the uncomfortable truth:
GDP ranking alone does not guarantee currency strength.
India may be the fourth largest economy in nominal terms, but:
-
Per capita income remains low
-
Imports exceed exports
-
Manufacturing is not globally competitive
-
The private sector heavily depends on foreign capital
A strong economy builds its currency.
A large economy just looks big on paper.
The gap between these two realities explains the contradiction.
RBI’s Role in the Rupee Slide
The Reserve Bank of India (RBI) routinely intervenes to prevent extreme fluctuations.
It does so by:
-
Selling dollars from reserves
-
Buying rupees in the market
But this strategy weakens India’s foreign exchange buffer.
At some point, RBI must choose between:
-
Protecting the rupee
-
Preserving reserves
Recently, RBI has allowed the rupee to fall gradually instead of aggressively defending it, signalling limited room to act.
Impact of Trade Deficit on Rupee
India’s trade deficit – the gap between imports and exports – has grown alarmingly.
Major reasons include:
-
Slow growth in labour-intensive exports
-
Lack of scale in manufacturing
-
Heavy reliance on imported crude and technology
-
Global recession affecting export demand
A rising trade deficit is like a slow poison for the currency.
It drains dollar reserves and increases pressure on the rupee month after month.
Manmohan Singh vs Modi: A Tale of Two Economies
This comparison has become politically sensitive, but economically necessary.
When Dr Manmohan Singh Was PM:
-
The rupee was around ₹60 per dollar when Modi mocked him
-
Global oil prices were extremely high
-
US monetary policy was tightening
-
India still maintained stable investment flows
Under PM Narendra Modi:
-
India is marketed as a ‘global powerhouse’
-
The rupee has slipped to ₹90 per dollar
-
Foreign investors are pulling out
-
Forex reserves are under pressure
-
Trade deficit has widened
-
Government debt has doubled
The question many are asking:
If everything is growing, why is only the rupee falling?
This contradiction needs honest answers, not political spin.
Why the Rupee Is Falling: The Complete Truth
Here are the core truths behind the Indian rupee depreciation:
1. Higher Imports Than Exports
India remains an import-heavy economy despite rising GDP.
2. Dollar Dominance
Dollar demand globally has increased.
3. Foreign Investor Exit
Geopolitical tensions and policy instability spook foreign investors.
4. Weak Manufacturing Base
India has not yet become a global manufacturing hub; imports dominate.
5. High Crude Oil Dependency
Oil prices directly dictate rupee movements.
6. Inflation Pressure
Higher domestic inflation weakens purchasing power and currency value.
7. Policy Contradictions
GDP growth figures do not align with:
This raises doubts about the sustainability of growth.
Is Calling India the Fourth Largest Economy a Scam?
Not a scam — but an incomplete truth.
India has:
-
A massive population
-
A large consumption-based economy
-
Strong services and IT exports
But without:
-
Strong manufacturing
-
Robust exports
-
Currency stability
-
Investor confidence
GDP size alone becomes a headline, not a reality for the common citizen.
Whose Failure Is the Rupee Slide?
Economic management is continuous.
But the reality is unavoidable:
1. The government is responsible for macroeconomic stability.
2. RBI is responsible for currency regulation.
3. Global markets influence the dollar heavily.
But politicians must answer why the rupee:
-
Has fallen sharply under a government that promised economic supremacy
-
Has weakened despite India being a ‘top-ranking economy’
-
Is doing worse than many global currencies
The rupee at 90 is not just a number — it is a mirror of India’s underlying economic weaknesses.
Conclusion: The Path Ahead
For the rupee to strengthen, India must:
-
Boost exports
-
Reduce import dependence
-
Improve manufacturing capacity
-
Attract long-term foreign investment
-
Control inflation
-
Bridge the gap between GDP claims and ground reality
The rupee vs dollar story is not about slogans or rankings.
It is a test of economic fundamentals — and currently, the fundamentals need fixing.
No comments:
Post a Comment