The Rupee has emerged as one of the top-performing Asian currencies, showcasing India's economic resilience in the face of ongoing Middle East challenges and geopolitical crises. Pankaj Chaudhary, Minister of State for Finance, emphasized the significance of this stance, highlighting India's strong economic fundamentals.
Unraveling the Rupee's Journey in a Turbulent World
Market-Determined Rupee: A Symbol of Economic Autonomy
The Rupee's position is market-determined, not bound by specific targets or levels. As of November 19, 2024, it has dropped 1.4 percent against the US dollar in the current calendar year. This decline is primarily driven by the overall strength of the USD. During CY 2024, the Dollar Index has increased by about 4.8 percent. More recently, it touched 108.07 on November 22, 2024, exerting pressure on emerging market currencies. This market-driven nature allows the Rupee to respond to global economic forces in a flexible manner.Moreover, the Rupee's performance is not isolated. Geopolitical tensions in the Middle East and the uncertainty surrounding the US elections have added to the challenges. Despite these, the INR remains one of the best-performing Asian currencies. As of November 19, 2024, major Asian currencies like the Japanese Yen and South Korean Won have fallen significantly. The Japanese Yen has dropped by 8.8 percent, and the South Korean Won by 7.5 percent. Notably, all G10 currencies, except the British Pound, have depreciated by more than 4 percent during CY 2024. This relative stability of the INR is a testament to India's sound and resilient economic fundamentals, as well as its macroeconomic and financial stability.Impact on Exports, Imports, and Domestic Prices
A depreciating currency typically leads to an increase in the prices of imported goods. However, it also boosts export competitiveness, presenting a positive outlook for the economy. The total impact on domestic prices and citizens due to exchange rate depreciation depends on how international commodity prices are passed on to the domestic market. The RBI closely monitors global developments that could impact the USD-INR exchange rate. These include monetary policy actions by major central banks, key economic data releases globally and their impacts, decisions at OPEC+ meetings, tracking and analyzing geopolitical events, and daily movements in G10 and emerging market currencies. The apex bank also regulates the foreign exchange market to ensure its orderly functioning and development, intervening only when necessary to curb undue volatility in the INR.FDI Inflows: Influenced by Multiple Factors
FDI inflows are affected by various factors such as the availability of natural resources, macroeconomic stability, foreign investors' decisions, the global investment climate, central bank interest rates, and tax regulations. Over the last 5 financial years, FDI has witnessed a significant decline. It dropped from $43 billion in 2019-20 to $10.1 billion in 2023-24. The Ministry of Finance continuously assesses the impact of the fiscal deficit to ensure prudent management of public finances while allocating adequate resources for social welfare and development projects.In conclusion, the Rupee's journey in the current economic landscape is complex yet resilient. It continues to navigate challenges and maintain its position as a strong Asian currency, backed by India's fundamental economic strengths. READ MORE