Depreciation of Indian Rupee

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Depreciation of the Rupee Sankhanath Bandyopadhyay* Introduction The rise and fall of the value of a currency vis-à-vis other currencies is a normal development in an interconnected global economy. However, it can become a matter of concern beyond a point, because a section of people in the country gets affected when the value of its currency either rises or appreciates too much (e.g. exporters are worse off as their products become more expensive in the global market leading to a fall in demand for the same, but importers are better off as importable become cheaper in foreign currency terms) or it declines or depreciates too much (e.g. exporters face internationally lower prices for their exportable as their currency gets cheaper and importers face higher prices of importable as foreign currencies get dearer). The depreciation of the Indian National Rupee has been witnessed since quite some time now. A conventional argument is that this automatically corrects the situation by depressing imports (fall in import demand due to rise in cost of imports) and augmenting exports (rise in export demand in rest of the world due to falling export prices), through which the domestic currency reaches its ‘equilibrium’ value. However, this may not happen due to a number of complex factors, and, even if such correction happens over some time, the country may face a number of problems in the meanwhile. Why has the Rupee declined so much? Reserve Bank of India (RBI) data reveal that, during 2007-2008, the rupee was hovering around Rs. 39 - 40 per US dollar (USD). Since April 2008, the rupee started declining against dollar, but fluctuated between Rs. 44 - 53 vis-à-vis the USD. Since early May 2013, there has been a considerable fall in its value leading to a historic low of Rs. 60 per USD by the end of June 2013. For a long time, and especially after the 2008 global financial

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