The Indian Rupee (INR) has seen a continuous decline in value against the US Dollar (USD) over recent years, reflecting both global economic shifts and domestic challenges. This trend has raised concerns over inflation, trade deficits, and overall economic stability in India.
Recent Depreciation of INR
The INR has dropped from around ₹74 per USD in 2020 to over ₹83 in 2024. The current value of the INR is hovering around ₹83.10 to ₹83.30 per USD, one of the lowest in India’s history. This decline is driven by several factors:
- Rising Crude Oil Prices: India imports nearly 80% of its crude oil, and the surge in global crude prices has widened the trade deficit, weakening the INR.
- Global Monetary Tightening: The Federal Reserve’s aggressive interest rate hikes have strengthened the USD, attracting capital away from emerging markets like India, leading to capital outflows and putting downward pressure on the rupee.
- Geopolitical Tensions: Ongoing tensions, particularly the Russia-Ukraine conflict, have disrupted global trade, further weakening emerging market currencies like the INR.
- Inflationary Pressures: High domestic inflation, exacerbated by global supply chain disruptions and rising energy prices, has eroded the rupee’s purchasing power, contributing to its decline.
Historical Perspective
In comparison to previous years, the rupee has been consistently losing value. From ₹67 per USD in 2016, the value dropped to ₹75 by 2020 and now remains above ₹83. The COVID-19 pandemic significantly disrupted India’s economy, leading to reduced growth and a substantial increase in fiscal deficits. These factors have further contributed to the long-term weakening of the INR.
Future Predictions
Analysts are divided on the future trajectory of the INR, but there is a general consensus that the rupee will remain under pressure due to global macroeconomic factors. Some predictions suggest the INR could depreciate further to around ₹85 per USD by the end of 2024, while others are more optimistic, expecting stabilization around ₹82. Key variables that will influence the rupee’s performance include:
- Global Interest Rates: If the US Federal Reserve continues to raise rates, the dollar will remain strong, putting downward pressure on the INR.
- Domestic Economic Policies: Efforts by the Reserve Bank of India (RBI) to manage inflation and stabilize the currency, including interventions in the forex market, will play a crucial role in determining the rupee’s future.
- Export and Trade Growth: A recovery in India’s export growth and better trade balances could help offset some of the rupee’s depreciation. India aims to boost its exports to $2 trillion over the next few years, which could provide some support for the INR.
- Foreign Direct Investment (FDI): India continues to attract substantial FDI, which could act as a stabilizing factor for the rupee. If FDI inflows increase, the demand for INR would rise, potentially strengthening the currency.
Conclusion
The rupee’s continued depreciation reflects the broader challenges facing India’s economy in the global marketplace. While domestic reforms and export growth may provide some relief, the INR is expected to remain under pressure in the short to medium term, particularly in light of global interest rate trends and geopolitical uncertainties.
