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Wednesday, February 12, 2025, 7:20 am

Wednesday, February 12, 2025, 7:20 am

Rupee Hits Record Low: Crisis or Opportunity?

Rupee Hits Record Low: Crisis or Opportunity?
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Monday marked a historic low for the Indian rupee, which plunged by 66 paise to trade at ₹86.70 against the US dollar. This unprecedented level highlights an ongoing decline, with the rupee losing almost ₹1 in value since December 30 when it crossed the ₹85 mark just 20 days prior. Beyond fiscal or trade-driven causes, this sharp depreciation reflects a growing erosion of confidence in India’s currency.

This decline has sparked renewed scrutiny of Prime Minister Narendra Modi’s past remarks about the rupee’s performance during the UPA era. While Modi never explicitly promised parity between the rupee and the dollar, his campaign rhetoric often implied that a stronger rupee was within reach. However, under his administration, the rupee has not only continued its slide but reached record lows.


Key Factors Driving the Rupee’s Decline

The depreciation stems from a combination of domestic and international pressures.

  1. Foreign Direct Investment (FDI) Outflows:
    The rupee’s weakness has been significantly influenced by the withdrawal of foreign investments. In 2024, FDI outflows totaled ₹1.20 lakh crore, and 2025 has started on a similar note. So far, ₹22,194 crore has been withdrawn, with a staggering ₹4,892 crore withdrawn on Monday alone.
  2. Dependence on Imported Crude Oil:
    India’s heavy reliance on imported crude oil remains a persistent economic vulnerability. With global crude oil prices hovering at $81 per barrel, India has resorted to purchasing discounted Russian crude despite Western sanctions and pressure. This dependency leaves the Indian economy exposed to geopolitical risks and fluctuations in global oil prices.
  3. Strengthening of the US Dollar:
    The dollar’s upward momentum has been fueled by the return of Donald Trump as the US President, effective January 20. His “Trumponomics” policies are seen as pro-growth for the US economy, attracting investors and strengthening the dollar against most global currencies. Emerging market currencies like the rupee have borne the brunt of this trend, which is expected to continue beyond Trump’s inauguration.

To manage the rupee’s decline, the Reserve Bank of India (RBI) has stepped in with interventions. However, market analysts predict that further depreciation is likely. For instance, Bechtel has projected the rupee could weaken to ₹88 in the near term, while ANZ Bank forecasts the same level by March.


A Silver Lining in the Rupee’s Decline

Despite the challenges, a weaker rupee isn’t entirely detrimental. For one, exports become more competitive, potentially boosting revenues for Indian businesses in global markets. Domestic manufacturers may also gain an edge as imported goods become costlier, encouraging local production. These factors could help mitigate some of the fiscal and trade imbalances caused by the depreciation.

India’s economy has historically shown resilience in the face of external pressures. By adopting careful, forward-looking strategies, the government can turn this crisis into an opportunity for long-term structural adjustments.


The Path Forward

While the rupee’s decline is cause for concern, it also presents an opportunity to make the Indian economy more competitive globally. The government must act decisively to bolster market confidence, manage fiscal risks, and strengthen economic fundamentals. By doing so, it can convert today’s challenges into a stronger and more stable future for the Indian economy.

 


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