From ₹44 to ₹84.40: The Indian Rupee’s 48% Slide Against the Dollar (2011-2024)
Since 2011, the Indian rupee has depreciated by nearly 48% against the US dollar,falling from ₹44 per dollar to a historic low of ₹84.40. This steady decline,averaging around 5% per year,reflects the combined influence of global and domestic factors. As we delve further,it becomes clear that a mix of international and local forces continues to shape the rupee’s path.Let’s explore some of the primary drivers behind this depreciation.
Factors Impacting Rupee Depreciation
1. U.S. Dollar Strength and Impact of Trump’s Policies
Trump’s victory has strengthened the US Dollar Index, reflecting confidence in his economic policies. However, his aggressive stance, including threats of a 100% tariff on BRICS nations if they pursue an alternative currency, underscores efforts to maintain the dollar’s dominance. BRICS—comprising Brazil, Russia, India, China, and South Africa—was established to foster economic cooperation and reduce reliance on the dollar, with discussions of a single trade currency gaining traction. While the dollar remains dominant due to the US economy’s strength and Treasury bonds’ safety, such moves create a cautious environment, particularly for emerging markets like India, potentially impacting the rupee amid trade and currency volatility.
2. Geopolitical Tensions & Oil Prices
India’s heavy reliance on crude oil imports makes the rupee vulnerable to global price fluctuations. A depreciating rupee inflates import costs, triggering higher fuel prices and cascading effects across sectors like aviation, fertilizers, and electronics. Companies with overseas borrowings also face rising repayment burdens.Geopolitical tensions, such as the Russia-Ukraine conflict and US-China rivalry,have created economic volatility. Recent missile strikes in the Russia-Ukraine war have heightened risks, strengthening the US dollar and pressuring the rupee further. Fluctuating crude oil prices, driven by these tensions, exacerbate India’s import bill, intensifying rupee depreciation.
3. Foreign Portfolio Investment (FPI) Trends
The Table provides a detailed breakdown of Foreign Portfolio Investor (FPI) movements in the Indian market from the16th to the 30th, highlighting both sectoral inflows and outflows. Financial services emerged as the top beneficiary, attracting ₹8,539 crore in FPI inflows, followed by sovereign instruments
and information technology.In contrast, oil, gas, and consumable fuels saw the highest outflows at ₹8,132 crore, along with sectors like automobiles, telecom, and construction materials. This sectoral divergence underscores a cautious FPI approach, driven by high valuations, moderate earnings, and a shift toward other global opportunities like China’s incentivized markets.
The outflows have intensified pressure on the rupee, already weakened by a strengthening US dollar driven by global economic and political developments.Despite RBI interventions, including directing banks to sell dollars, the sustained FPI exit has exacerbated rupee depreciation, compounding challenges for India’s trade balance, inflation, and economic stability. As FPIs continue to recalibrate their investments, their sectoral preferences play a pivotal role in shaping market dynamics and influencing India’s macroeconomic landscape.
With the rupee under strain from foreign investment outflows, its depreciation has further implications for India’s trade balance. As foreign investment outflows intensify pressure on the rupee, the ripple effects extend deeper into India’s economic landscape, impacting trade balances, import costs, and inflation, and presenting new challenges for economic stability.
Microeconomic Drivers of Rupee Depreciation
1. Impact of Currency Depreciation on India’s Import & Export Balance
The table highlights India’s trade dynamics, showing an increase in both exports and imports between April-November 2023 and April-November 2024, with exports rising from $498.3 billion to $536.3 billion and imports increasing from $565.3 billion to $619.2 billion. This widening gap underscores a growing trade deficit, further exacerbating the depreciation of the rupee.
The depreciation of the rupee intensifies challenges for the Indian economy.While export growth is relatively modest, the sharp increase in imports, driven by dependency on energy and essential raw materials, continues to widen the current account deficit. Domestic initiatives like ‘Make in India’ have yet to significantly reduce reliance on imports in key sectors such as electronics and machinery. For importers, a weakening rupee translates into higher costs, particularly with rising oil prices, contributing to inflationary pressures. These factors, coupled with declining FDI inflows and slowed export growth, amplify the structural trade imbalance, placing added strain on India’s economic stability.
2. Why India’s Trade Imbalance Matters More Than Ever?
India’s current account deficit (CAD) widened marginally to $9.7 billion (1.1% of GDP) in Q1 FY2024-25, up from $8.9 billion (1.0% of GDP) in Q1 FY2023-24,reversing the surplus of $4.6 billion (0.5% of GDP) recorded in Q4 FY2023-24.This widening CAD reflects an increase in the merchandise trade deficit, whichgrew from $56.7 billion to $65.1 billion yo-y. Looking ahead, the CAD for the second quarter is expected to be higher than the previous quarter. Merchandise exports shrank by 3.9% during the period, with goods exports falling to a 12-quarter low of $103 billion. The decline in goods exports follows subdued demand from major trading partners, including China, Singapore, Bangladesh, and Australia.
The widening CAD signals a persistent trade imbalance and growing foreign currency obligations, which put further downward pressure on the rupee. As external debt rises, both corporate and government sectors become more vulnerable to global interest rate hikes, compounding the challenges of rupee depreciation.
3. The Role of Gold in Supporting the INR
India’s position as one of the world’s largest gold importers significantly affects the rupee. While nations that export gold can benefit from rising gold prices,strengthening their currency, India experiences the opposite. When global goldprices increase, India’s import bill rises sharply, widening the trade deficit and placing additional downward pressure on the rupee. In FY 2024,gold imports reached a peak value of 4908.4 billion Indian rupees, marking the highest level recorded Tsho ifsa rs. urge in gold imports further intensified the trade imbalance, as reflected in India’scurrent account deficit. The high cost of importing gold, coupled with rising demand.
4. RBI’s Initiatives to Stabilize the Rupee
The RBI has taken proactive measures to stabilize the rupee, including deploying state-owned banks to sell dollars in the market and promoting rupee-based international trade agreements, such as with the UAE.These steps aim to reduce reliance on the US dollar, strengthen the rupee, and mitigate its vulnerability to external fluctuations. However, the challenges ofhigh import dependence and geopolitical factors continue to exert pressure on the currency, underscoring the need for structural economic reforms.
The table highlights a steady decline in the RBI’s total reserves, which dropped from $701.2 billion on October 4, 2024, to $658.1 billion by November 29, 2024. This significant reduction reflects the RBI’s dollar-selling efforts to support the rupee amidst growing trade deficits and global economic pressures. The decline coincides with a weakening rupee and rising import costs, particularly for energy and essential goods. Despite these interventions, reserves remain under strain due to persistent demand for dollars and a widening trade imbalance.
While these measures have offered short-term stability, the broader economic context, marked by high import reliance and geopolitical uncertainties,necessitates long-term strategies. Structural reforms to boost domestic production and reduce import dependency will be critical to ensuring the rupee’s sustained strength and economic resilience.
Outlook on the Rupee Amid Global Shifts
The depreciating rupee poses rising challenges for India. Higher import costs, paired with elevated oil prices, are likely to fuel inflation. This is particularly concerning for industries reliant on imported materials, like electronics, automotive, and pharmaceuticals, where rising production costs may lead to narrower profit margins or price hikes.
A weaker rupee means these industries may face tough choices: raise prices, reduce production, or cut margins.
For sectors like IT and software, the story has traditionally been different; a weaker rupee has bolstered dollar-denominated revenues. However, with the global slowdown in tech spending, the gains from a depreciating rupee may not be as substantial as before.
Given these changing dynamics, it becomes clear that the rupee’s impact on India’s economy is evolving, presenting new challenges for sectors traditionally seen as benefiting from a weaker currency.
Policy Challenges Ahead
For Indian policymakers, the depreciating rupee presents a serious test. A weaker currency raises the cost of foreign borrowing, which affects businesses and the government. As interest rates on foreign loans rise, businesses may find it harder to finance new projects, potentially slowing down critical infrastructure development and capital expenditure. This could lead to delays in infrastructure and economic growth as higher borrowing costs deter investment.
The rupee’s depreciation reflects the interplay of global and domestic factors.Policymakers, investors, and industry leaders are carefully monitoring the situation, understanding that both macro and microeconomic dynamics will shape the currency’s trajectory in the months to come. For the Indian economy, the stakes are high, and how these challenges are managed will determine the path forward.
SEBI Registered Investment Advisor:-
Company Name: ORIM ADVISORS PRIVATE
LIMITED SEBI Registration Number: INA000018294 CIN: U74999MH2021PTC373405
Address: 13/C, Mini Land, Tank Road, Bhandup West, Mumbai, Maharashtra 400078.
Principal Officer & Compliance Officer: Vedant Sanjive Kumar Pathella
Contact no: +91- 7977016006 Email: connect@orim.in
Disclaimer:-
Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Past performance should not be considered as a guarantee of future returns.
Detailed Disclaimer:-
https://orim.in/sebi-disclosures/
SEBI Office address: SEBI BHAVAN 2, PN-C/7, G Block BKC, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra 400051
