6 months ago
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The Rupee has depreciated to ₹90.41 against the U.S. Dollar connected December 3, 2025 which is simply a caller record. It is among the worst performing currencies successful caller times. Experts property this steep autumn of the Indian Rupee to FPI and different superior outflows owed to much charismatic concern opportunities successful AI stocks successful different markets, delayed decision of commercialized deals particularly with the U.S., diminution successful exports owed to the penal U.S. tariffs and planetary commercialized uncertainty, widening existent and superior relationship deficits owed to superior outflows, sanctions connected the import of inexpensive Russian lipid pushing up wide crude lipid import expenditure owed to much costly alternate sources, and rising import costs of golden owed to the prevailing precocious prices of gold.
Neither the economists astatine the Finance Ministry, nor the economists astatine the Reserve Bank of India look to beryllium unduly perturbed by a steeply depreciating Rupee, arsenic the home complaint of ostentation is good beneath the tolerable scope of 2 to 6%, GDP is increasing astatine a steadfast complaint of astir 8% successful the archetypal 2 quarters of this fiscal twelvemonth and agriculture, manufacturing and services are performing according to expectations. Some adjacent reason that the weightage of import prices successful our Consumer Price Index is excessively minimal to person a important interaction connected our home complaint of inflation. Moreover the caller GST complaint simplification and rationalisation, and the immense nationalist superior expenditure connected infrastructure and different sectors is apt to pb to a home request revival and prolong the maturation momentum of the economy.
Some economists invited rupee depreciation arsenic it cheapens our exports and marque them charismatic for overseas buyers, portion rendering our imports unattractive for home consumers. But does a falling rupee truly assistance our economy? For this we person to analyse what economical mentation has to connection connected the subject. Let america see a elemental textbook illustration of commercialized betwixt 2 countries, involving lone 2 commodities, namely, wheat and cloth. Let the 2 countries beryllium U.S. and India. Let some the countries nutrient some the products. However each would similar to specialise lone successful 1 product, export it and import the different product. Let america presume that the U.S. is much productive than India and arsenic a result, determination are differences successful wage rates betwixt the 2 countries.
We presume that the workers successful the U.S. enactment 1 hr each successful producing 6 bushels of wheat and 4 yards of cloth and gain $6 per hour. Similarly, the workers successful India enactment 1 hr each successful producing 1 bushel of wheat and 2 yards of cloth and get paid ₹100 per hour. If labour outgo is the lone outgo that determines the per portion terms of wheat and cloth, past utilizing the rupee-dollar speech rate, it is imaginable to place a ground for mutually beneficial commercialized betwixt the 2 countries.
Initially, fto america see a hypothetical speech complaint of ₹20: $1. Using this speech complaint and the prevailing wage complaint per hr successful the 2 countries, fto america explicit the per portion terms of wheat and cloth successful dollars alone. Accordingly, successful the U.S. 1 bushel of wheat volition outgo $1 and 1 gait of cloth volition outgo $1.5. Likewise successful India, erstwhile the wage complaint successful rupees is converted into dollars utilizing the supra speech rate, 1 bushel of wheat volition outgo $5 and 1 gait of cloth volition outgo $2.5. Therefore, astatine the speech complaint of ₹20:$1, determination is nary ground for mutually beneficial commercialized betwixt the 2 countries, arsenic US turns retired to beryllium the cheapest shaper of some the products. US would similar to export some to India portion India volition person thing to springiness successful return.
Now fto america marque the rupee cheaper against the dollar by considering an speech complaint of ₹40:$1. Using this speech complaint and the prevailing wage complaint per hour, expressed successful dollars for some the countries, 1 bushel of wheat volition outgo $1 successful the U.S. and $2.5 successful India, portion 1 gait of cloth volition outgo $1.5 successful the US and $1.25 successful India. At this speech rate, mutually beneficial commercialized is imaginable betwixt the 2 nations, arsenic wheat is comparatively cheaper successful the US portion cloth is comparatively cheaper successful India. US volition specialise successful wheat accumulation and export it successful instrumentality for Indian cloth. So successful this elemental illustration, rupee depreciation against the dollar has helped India execute commercialized parity with the US. If the rupee depreciates adjacent further, let’s accidental to ₹60 per dollar, the commercialized payment to India volition beryllium adjacent better.
But determination is besides a downside to rupee depreciation. India being mostly an importing nation, currency depreciation volition marque imports adjacent much costly and widen India’s existent relationship shortage arsenic a percent of its GDP. The autumn successful the planetary worth of the rupee whitethorn person home consequences arsenic well. The home complaint of ostentation volition emergence and the RBI whitethorn follow a choky wealth argumentation to antagonistic this, which volition further wounded concern and growth. Capital flows to India whitethorn besides diminution due to the fact that of a rising existent relationship shortage and a rising home complaint of inflation, which volition further weaken the rupee internationally. All this proves that determination is simply a bounds beyond which currency depreciation does not assistance a federation economically.
Now, see a wholly antithetic scenario. India manages to amended workplace labour productivity, by investing successful suitable accumulation technologies, portion conditions successful the US stay the same. Assume successful India, workers present nutrient 4 bushels of wheat per hr and 3.5 yards of cloth per hour, portion US workers proceed to nutrient 6 bushels of wheat and 4 yards of cloth per hour, respectively. The wage complaint successful some the countries besides remains the aforesaid arsenic before, i.e., $6 per hr successful the U.S. and ₹100 per hr successful India. Even astatine the earlier speech complaint of ₹20:$1, commercialized betwixt India and the U.S. present becomes mutually beneficial. In presumption of per portion prices, 1 bushel of wheat volition outgo $1 successful the U.S. and $1.25 successful India, portion 1 gait of cloth volition outgo $1.5 successful the US and $1.43 successful India. Since wheat is comparatively cheaper successful the U.S. and cloth is comparatively cheaper successful India, U.S. volition specialise successful wheat accumulation and India successful cloth accumulation and they volition speech their respective products of specialisation.
So, adjacent with a comparatively stronger rupee, it is imaginable to summation from planetary trade, if we amended the productivity of labour and superior done due investments successful Research and Development, transport infrastructure, energy, acquisition and health. If done economical policy, we are capable to region the impediments to improved productivity, past it is not indispensable to trust connected currency depreciation to amended our export performance. Currency depreciation tin astatine champion beryllium a abbreviated word measurement to boost exports and span the abbreviated tally commercialized deficit. The solution nevertheless lies successful improving wide economical efficiency, for which immense investments person to beryllium made successful the areas mentioned above.
In decision it tin beryllium said that portion currency depreciation leads to an summation successful wide export value, it request not needfully effect successful an summation successful export volume. Therfore currency depreciation contributing to improved export competitiveness is lone 1 broadside of the story. The different broadside depends connected export capableness and productivity, the prevailing opportunities for exports and bilateral commercialized relations and agreements. Given the existent geopolitical and commercialized uncertainties plaguing the satellite economy, it is excessively overmuch to expect a falling rupee to boost India’s exports unless determination is advancement connected the different fronts aswell.
No uncertainty the U.S. dollar is strengthening against different currencies, arsenic is the terms of golden successful the planetary market, since some are considered arsenic harmless haven investments, erstwhile faced with planetary economical and governmental unrest. The warfare successful Europe shows nary signs of abatement portion warfare clouds are gathering connected the skyline adjacent Venezuela. Therfore it is advisable for the Reserve Bank of India and the Government of India to enactment successful spot a strategy to antagonistic the rupee depreciation by offering exporters involvement complaint rebates and incentives to deposit their dollar net successful India, connection charismatic presumption and rates of involvement connected dollar-denominated bonds and NRI deposits, promote Corporates to velocity up their dollar borrowing plans and deposit their dollar net successful home banks and promote home banks to participate into currency swaps with American banks.
(B. Bhagwan Das is Former Associate Professor of Economics ,Loyola College, Chennai)
