RUPEE DEPRECIATION

NEWS: Currency depreciation àmore often erodes purchasing power and undermines investor confidence.

Advantages of Rupee Depreciation

• Lowers the dollar price of Indian exportsàdomestic goods a price advantage in global markets.
• The rising rupee value of foreign earnings incentivises NRIs to increase remittances.
• Rising cost of imported goods-à channels consumer demand toward local manufacturers, reinforcing the Make in India push.
• Weaker rupee lowers the dollar cost of acquiring Indian assetsà FDI inflows rose by 14% to $81.04 billion in FY25.

Disadvantages of Rupee Depreciation

• Every ₹1 of depreciation àadds roughly 0.2-0.3% to retail inflation=directly increasing the cost of essential imports like crude oil.
• Indian companies with dollar-denominated loans face higher repayment expenses as the rupee depreciates.
• Higher import bills for energy+ electronics widened the trade deficit to a record $41.7 billion in October 2025.
• RBI dollar sales to stabilise the rupee caused forex reserves to fall by nearly $30 billion in early 2026.
• Prompted FIIs to withdraw a record $18 billion from Indian equities by mid-2026.

Government Measures to Stabilise the Rupee

• The RBI sells dollars from its reserves to provide immediate liquidityàprevent a disorderly depreciation.
• Higher interest rates draw foreign capital into Indian bonds= reducing dollar demand pressure on the rupee.
• Settling trade in INR via Special Vostro Rupee Accounts bypasses dollar demand.
• RBI restrictions on banks’ participation in the offshore Non-Deliverable Forward (NDF) market prevent speculative attacks on the rupee.
• Eased rules on FCNR(B) deposits and External Commercial Borrowing (ECB) attract high-value foreign currency.
• Tariff hikes on non-essential imports, such as gold, reduce foreign exchange outflows and narrow the trade deficit.