Not even a week since our Finance minister Sitharaman asserted there is no collapse in the Indian Rupee, I was asked to write an article on “The fall of the Indian rupee.” The minister left many perplexed when she said that the RBI’s intervention is not needed to fix the value of the Indian Rupee because it is free to find its course.
Instead of directly denying that the Rupee is depreciating and seeing new lows against the dollar, the minister strengthened a few economists’ commentaries to let the rupee fall when it’s falling and to refrain from making efforts to control the exchange rate with extraneous factors. While the observation that the Rupee withstood the US Fed’s decisions much better than any other currency took a back seat in headlines, the reason for that did not even get to enter the discourse. RBI maintained the Rupee better against other currencies by the sale of dollars, losing around 10% of its foreign reserves in nine months.
The Rupee has seen a downward spiral in the past few weeks. Down nearly 6.5% since January this year, it has ignited a tinge of the inquisition in the Economist and Public Intellectual circles. The financial anxiety an ordinary person has to go through at a time when the country is struggling with high inflation and insane costs of essential commodities needs to be put under Public scrutiny.
The Demand-Supply basis that affects the value of the Rupee against the dollar is not unfamiliar to us. The exports crossing Imports is a principal reason for the domestic currencies, as in Rupee for India, to lose their value against the US.
Note that “the fall of the Indian rupee” is solely due to the high crude oil prices and foreign capital outflows. Since 2022, the Rupee has depreciated following the supply chain disruptions due to the Russia-Ukraine war. Foreign Institutional Investors (FIIs) selling shares worth $28.4 billion has led to a heavy monetary outflow from domestic markets. This colossal money outflow lessens the value of money, which alters the rupee-dollar exchange rate. The pressure put on the actual high import price of crude and raw materials due to the Rupee’s fall increases the cost of production and import inflation in addition to retail inflation.
The fall in the Rupee increases the cost of living for apparent reasons. We have to pay more than we are supposed to when we import things, which increases production costs and makes it difficult for the ordinary person.
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