It has been 35 years since India, following an unprecedented financial emergency, transitioned from a closed economy to a globally integrated one. In 1991, when the country took the liberalisation plunge amid a balance of payments (BoP) crisis, the rupee traded at 35 against the US dollar. At that time, crude oil prices hovered around USD 22 per barrel.
Rupee Depreciation Trends
Since then, the rupee has depreciated by an average of 3% annually against the dollar, while crude oil prices have risen by 4% per year. Over the last decade, the rupee has weakened by an average of 4% annually, with oil prices climbing 11% each year. In the past two years, the Indian economy has faced significant headwinds. Foreign investors are pulling out capital, foreign direct investment (FDI) has hit an all-time low, and domestic companies lack demand incentives to reinvest in the economy.
Why a Weaker Rupee Could Help
Against this backdrop, some Indian manufacturers are quietly hoping for the rupee to hit the 100 mark against the dollar. A weaker rupee makes Indian exports cheaper in global markets, potentially boosting demand for locally made goods. This could provide a much-needed stimulus for the manufacturing sector, which has been struggling with sluggish domestic consumption and tepid investment.
While a depreciating currency raises the cost of imported inputs, particularly crude oil, the export advantage may outweigh the negatives for certain industries. For manufacturers with high export exposure, a rupee at 100 could improve profit margins and competitiveness. However, policymakers must balance these benefits against the inflationary impact of costlier imports.
