The current USD-INR exchange rate, hovering around ₹83-84 per dollar, is causing significant harm to the Indian economy. The rupee’s continuous depreciation impacts inflation, increases import costs, and widens the current account deficit, particularly in critical sectors like oil and technology imports. A revaluation of the rupee could bring multiple benefits:
1. Inflation Control
India is heavily dependent on imports, with oil being the most crucial. The depreciation of the rupee leads to higher oil import bills, which have a cascading effect on inflation, making essential commodities more expensive for the common man. A stronger rupee would reduce these costs, helping to control inflationary pressures.
For example, India imported $161 billion worth of crude oil in FY2023. With a stronger rupee, even a 5% appreciation could save billions in import costs, directly impacting domestic inflation.
2. Current Account Deficit (CAD)
India’s widening current account deficit, which touched $67 billion in FY2023, is a major concern. A weaker rupee exacerbates the situation by making imports more expensive while Indian exports, which could benefit from a weaker rupee, haven’t shown the expected surge. A lower USD-INR rate would help reduce the CAD by curbing import costs, especially in critical sectors such as crude oil, machinery, and electronics.
3. Debt Servicing Costs
India’s external debt, which was around $624 billion as of March 2023, is mostly denominated in dollars. With the rupee depreciating, the cost of servicing this debt increases, putting additional pressure on the economy. A stronger rupee would reduce India’s debt-servicing burden, freeing up resources for domestic development.
4. Improving Consumer Purchasing Power
A revaluation of the rupee would also boost the purchasing power of Indian consumers, especially for imported goods such as electronics and luxury items. This, in turn, could support consumption-driven growth, which is vital for India’s economy. Additionally, industries relying on imported raw materials would see their costs decline, leading to better pricing for end consumers.
5. Stability in Foreign Investments
While a weaker rupee could theoretically attract foreign investors by making Indian assets cheaper, persistent depreciation breeds uncertainty. A stronger, more stable rupee would give foreign investors confidence, potentially boosting inflows into sectors such as technology and manufacturing, which rely heavily on imports and dollar-denominated investments.
6. Boosting the Indian Export Economy
Although a depreciated rupee benefits exporters by making Indian goods cheaper in foreign markets, the extent of this advantage has been limited. The global economic slowdown, coupled with inflationary pressures, has kept export growth subdued. A stronger rupee, coupled with policy reforms, would ensure that industries—especially those dependent on foreign inputs—remain competitive without causing inflation.
Conclusion
While a weaker rupee offers short-term export benefits, its long-term economic costs outweigh these gains. A revaluation of the USD-INR rate would curb inflation, reduce the current account deficit, ease the external debt burden, and improve overall economic stability. India must re-examine its rupee-dollar exchange rate strategy to enhance economic resilience and promote sustainable growth.
