DEPRECIATION OF INR AGAINST USD – A CRITICAL ANALYSIS

DEPRECIATION OF INR AGAINST USD – A CRITICAL ANALYSIS -*Dr. S. Vijay Kumar ABSTRACT Money is an important powerful tool which was created by man thousands of years ago. As Alfred Marshall a famous economist said “Money is a pivot around which the whole economy clusters”. India continues to be the fastest growing major economy in the world, with an estimated GDP of 6.4% in 2026. The appreciation and depreciation of the rupee are strongly influenced by the change in demand or supply for the rupee and the dollar. Therefore, the rupee will appreciate if there is an upsurge in its demand and depreciate if demand lessens. The depreciation of the Indian Rupee is not merely financial statistics—it reflects deeper economic shifts driven by inflation, trade deficits, foreign investment flows, and macroeconomic policies. While a weaker rupee can boost exports and remittances, it also raises import costs, fuels inflation, and impacts investor confidence. Striking a balance between the risks and opportunities presented by a weaker currency is crucial for economic stability. This paper is an attempt to study and understand the dynamics of Indian Rupee fluctuations against US Dollar. Key words: Depreciation of INR Vs USD, Impact of INR Depreciation, Exchange Rates, Solutions Introduction: The Indian Rupee’s value against the US Dollar has been a concern for economists, businesses, and policymakers alike. Several economic factors contribute to the weakening of the Rupee, impacting India’s financial landscape and global competitiveness. Depreciation of rupee has become a worry and challenging for the Indian Government. The INR hit an all-time historical low of 92 against USD on 29/01/2026. While, depreciation causes exports problem, appreciation causes concern to imports of India. Hence, balance need be maintained between depreciation and appreciation of rupee. The exchange rates play a vital role in a country's trade, which is critical to almost for every free market economy in the world. Therefore, exchange rates are among the most monitored, analysed and manipulated factors through economic measures by the government. The U.S. dollar became the official global reserve currency in 1944, delegated by 44 allied countries called the Bretton Woods Agreement. To understand this article, first one must be familiar with the following terminology. Exchange Rate: An exchange rate is the value at which one country’s currency can be exchanged for another country’s currency. For example, one USD was equal to 92 INR on 29/01/2026 (Economic Survey: 2025-26). Types of Exchange Rates: Fixed Exchange Rate System or Pegged Exchange Rate System, Flexible Exchange Rate System or Floating Exchange Rate System. *Head & Professor (Associate) of Economics (Retd.), KGC (NAAC “A+”), Ex - Member Board of Studies, Kakatiya University, Warangal, Telangana State. 1 Fixed Exchange Rate System: Under this system, a country fixes the value of its currency in terms of some ‘External Standard’, which can be precious metals such as gold or silver, or currency of some other country or some internationally agreed unit of account. The main purpose of adopting this system is to ensure stability in capital movements and foreign trade. To maintain stability, the government buys foreign currency when the exchange rate weakens and sells foreign currency when it strengthens. In order to be able to do this, the government maintains large reserves of foreign currencies. Up to 1993, India followed this system. Under this system the value of Indian rupee was pegged to a basket of major global currencies for example, USD or Pounds. In 1991, India faced severe balance of payment crisis, which led to economic reforms and a shift in exchange rate policy from fixed to floating exchange rate. Flexible Exchange Rate System: It is also known as a ‘Floating Exchange Rate’. In this system, the rate of exchange is determined by the market forces of demand and supply of the currencies in the foreign exchange market. In this system, there is no intervention of the government in the foreign exchange market. India implemented the dual exchange rate system (Both fixed and floating) in 1992–93. Managed Floating Rate System: It is a system having characteristics which is hybrid of both fixed as well as flexible exchange rate systems. In this system, rate of exchange is determined by market forces, but, time to time, the Central Bank (in our country RBI) intervenes in the foreign exchange market to keep the fluctuations within certain limits. It is also known as ‘Dirty Floating’. According to IMF, 43% of all countries in the world are using this system. Since, March 1993 India is following this system. Foreign Exchange Rate Dynamics and Market Functioning: • The exchange rate of currencies can be calculated using several methods: Fixed or Flexible or Managed Floating Rate. • In the exchange market, Institutions and Traders trade foreign currencies 24 hours a day. The foreign currency’s active trading constantly influences the exchange rate. • The value of each currency is either increased or reduced by various trading activities. • At least one currency must be exchanged for another currency to complete a transaction. In other words, another currency is required to purchase the US Dollar. A currency pair shall comprise any currency that may be used, including the Euro, Yen, or the Canadian Dollar. For example, if you buy the Indian Rupees using US Dollars, the exchange rate will be 2 INR/USD. USD plays a vital role in fixing the exchange rate with other countries in the world, because many global trade, commodity pricing, and cross-border investments are done in US dollars. So, whenever the INR strengthens or weakens against USD, it affects the Indian economy in many ways. The Stock Markets also reacts to these changes because they impact corporate profits and investor behaviour. Depreciation of INR: It refers to the decline in the value of the Indian Rupee relative to a foreign currency, typically the US Dollar (USD). Appreciation of INR: The rupee will appreciate if there is an upsurge in its demand. When a country sells more services or goods than it buys from other countries, it indicates that foreign currency flowing into the country exceeds what we pay for imports. This leads to an appreciation of a currency. Devaluation: Devaluation refers to a reduction in the value of domestic currency by the government. INR was devalued 3 times in 1949, 1966 and finally in 1991. Revaluation: Revaluation refers to an increase in the value of domestic currency by the government. Revaluation refers to a situation when the value of a currency with respect to a foreign currency increases in a fixed exchange rate. History of INR Vs USD: This can be understood through the following phases: 1.The Post-Independence Era: In 1947, India had no foreign debt or credit on its accounting report as a free country. This could imply that 1 USD = 1 INR. As India was a British administered state before its freedom, the worth of INR was gotten from the British pound. There was no standard process for contrasting the world currencies before 1944, so this valuation stayed consistent. According to the Bretton Woods Agreement of 1944, every nation was expected to fix the worth of its currency to the dollar, which itself was convertible to gold at the rate of $35 per ounce. India was additionally covered under this arrangement, and thus at the time of freedom, India followed the par value system of exchange rates. (The par value of the currency of each member shall be expressed in terms of gold as a common denominator or in terms of the United States dollar w.e.f 1st July, 1944). At the time of independence, India’s economy was in an unfortunate state. In 1949 to reduce trade deficit, India devalued its currency. To back welfare and development activities, particularly with the starting of five-year plan in 1951, the Indian government under the Prime Minister of Pandit Jawaharlal Nehru, persistently borrowed from foreign and private sector sources beginning from the 1950s onwards. As a result, the rate of foreign borrowings expanded at a high rate during the 1960s. In April 1957, the Indian Rupee was decimalized and was divided into 100 Naya Paisa. 3 Before the decimalization, one Rupee was equal to 16 anna. For a brief time, both decimal and non-decimal coins were available for use. The Rupee stayed unaltered in worth and value. The prefix "Naya Paisa" was taken out in 1964. The decimalization of India's currency was a significant initiation towards modernization and progressive economic change. 2. 1960's: The Phase of War and Drought: The Indian government was confronting a high budget deficit and was not in the capacity to borrow additional funds because of a negative rate of reserves and savings. The Indo-China war worsened the circumstance in 1962, the Indo-Pakistan war in 1965, and the situation of drought in 1965-1966. The defence spending at that time was around 24.06% of the total government expenditure, which factually was exceptionally high. The Indira Gandhi government devaluated the Indian currency in 1966 following the trajectory of years of deficit in the current account and afterward it remained at that level for quite a while. The worth of 1 pound = 13 Rupee went on till 1966. After 1966, the INR was contrasted with the USD on a balanced premise and the Rupee began seeing depreciation thereon. India-China war of 1962, Indo-Pakistan battle of 1965 and the drought season in 1966 hampered the production capacity of the Indian economy, which resulted in a surge in the rate of inflation. To expand the domestic production capacity, the Indian government required deployment of advanced technology. As a result, to deploy the required technology to tackle the inflation rate and open the Indian economy for foreign trade, the government devalued the Indian currency. As a result of financial disturbance, the then Prime Minister needed to devalue the Rupee to 1 USD = 7.50 INR by 1967. The devaluation led to cheapening of exports and imports, which brought about a sharp expansion in costs, prompting inflation. 3. 1971 - The Year When Bretton Woods Agreement Collapsed: The Bretton Woods agreement disintegrated somewhere between 1968 and 1973. In August 1971, U.S. President Richard Nixon reported the temporary suspension of the dollar's convertibility into gold. While the dollar had battled all through a large portion of the 1960s inside the parity laid out at Bretton Woods, this emergency denoted the breakdown of the framework. An endeavour to restore the fixed exchange rates was failed, and by March 1973 the major currencies started to float against one another. India took on a fixed rate framework and was connected to the U.K. pound sterling after the breakdown of the Bretton Woods Agreement. It is to be noted that by 1975, Rupee was fixed to a number of currencies to guarantee the stability of the Rupee and to battle the rising imbalances related with single currency peg. Rupee value went down to 8.10 in 1974 as an outcome of the oil shock in 1973 in light of the choice to lessen production by the Organization of Arab Petroleum Exporting Countries (OAPEC). The progress of floating exchange rates was somewhat smooth, and it was positively ideal: 4 adaptable trade rates made it simpler for economies to acclimate to costlier oil, when the cost began to rise in October 1973. 4. The Economic Crisis of 1991: The Soviet Union had been a pivotal trade accomplice of India since the 1960s. Notwithstanding, because of the breakdown of the Soviet Union during the 1980s, India's exports fell by a critical extent. Combined with the multiplying of the crude oil costs by the Persian Gulf countries in 1990, India confronted a genuine balance of payment quotient crisis in 1991. The interest instalment made up 39% of the government's income and the fiscal deficit diminished to 7.8% of GDP. The foreign reserve dried to the point that India barely had the money for another three weeks' worth of imports. The nation almost failed. India needed to borrow from the International Monetary Fund (IMF) against its reserves of gold. The foreign exchange rate plunged all through the 1980s and by late 1990, the rate was 1 USD = 17.32 INR. The financial emergency required a devaluation of the Rupee in 1991. This was done to empower an expansion in exports and an expansion in the inflow of foreign currencies. In 1991, the Reserve Bank of India (RBI) diminished the conversion rate by 11% altogether as an ideal move to manage the crisis. With this, India finished the fixed-rate currency system and moved towards a market determined exchange rate system. 5. The Fluctuating Period of 2000's: The impact of devaluation made the exchange rate of 1 USD to 25.92 INR in 1992. The Indian Rupee continued to fall from that point forward. By 2002, the Rupee had tumbled to 48.99 against the U.S. dollar. In 2007, the Rupee appreciated and arrived at a high of Rs 39.27 to the dollar on account of the sustained foreign direct investment (FDI) inflows. Some other reasons for sustained foreign direct investment (FDI) inflows included: booming stock market, surging rate of remittances and development in exporters driven by the I.T. and BPO firms in the country. India saw a dramatic turn and in July and August 2013, the Rupee went directly to Rs. 68. The 2016 demonetization which was the end of Rs 500 and Rs 1,000 notes prompted almost 86% of the money available for use being invalid for the time being. This affected investments, consumption patterns, and income among many other scenarios. Additionally, the inaccessibility of recently printed notes implied a decreased measure of cash available for use. The money available for use was another Rs 500 note and a first for the Indian cash Rs 2,000 note-and later new notes of old sections like Rs 10, Rs 20, Rs 50, Rs 100 and another first-Rs 200 note were introduced. Demonetization was a method for combatting black money and corruption in the economy and to push forward the concept of digital India with an expansion in the utilization of cashless exchanges because of demonetization. In 2016, the USD to INR hit a record with 1 USD = 68.77 INR, the highest rate around then. On 19th May 2023, the RBI formally announced the withdrawal of 2000 note from active circulation. 5 6. The Havoc Brought by Coronavirus: Rising number of positive cases had both direct and indirect impact on the economic value. The Union Health Ministry of India starting around 23 March 2020 revealed an aggregate of 415 Covid-19 affirmed cases. The Prime Minister Narendra Modi called for a Jantha Curfew to slow the spread of the infection COVID-19. Government additionally enforced Section 144 to further contain the spread of corona virus in the country. Movement and travel restrictions in the further situations worsened the overall case and the economic activities saw a slump and slowdown as a result. Investors selling off Indian stocks wasn't a positive sign either. According to the National Securities Depository Limited, foreign institutional investors (FIIs) had sold a net worth of more than $12 billion of bonds and shares. The top 30-stock S&P BSE Sensex had fallen by 22% up until this point. In addition to the Indian Rupees taking a hit, gold costs likewise saw a drop of 8.20% during this tenure. Despite measures from the government and the Reserve Bank of India (RBI) to safeguard the interest of financial investors, investors didn't appear to have a craving for any asset or investment. INR Vs USD Exchange Rate 1947 – 2026 Year Period / Exchange Rate Regime / Major Event INR per 1 USD 1947 3.3 Fixed Peg under Bretton Woods 1950–1965 4.76 6.36 Continued Fixed Peg; Import Substitution Phase 1966 1967–1971 7.5 Major Devaluation due to Trade Deficits and IMF Pressure Peg Maintained Post-Devaluation 8.1 1974 Post-1973 Oil Shock Depreciation 17.5 Early 1990s Rising Imbalances; Increasing Pressure on External Sector 1991 22.74 25.92 BoP Crisis; First Major Rupee Devaluation 1992 Introduction of LERMS (Dual Exchange Rate System) 30.49 1993 Unified Market-Based Rate; Start of Managed Float 36.31 1997 Asian Financial Crisis; RBI Intervention Period 43.51 2008 Global Financial Crisis Impact 76.38 2020 COVID-19 Pandemic; Record Depreciation 2023 81.94 84.83 Volatile Capital Flows; RBI Stabilization Strategy 2024 Continued Managed Float; Post-Pandemic Recovery Measures 2025 88.44 Stronger demand for USD, Higher Trade Deficit, Selling by FPIs, US Trade Uncertainty 2026 January, 29 92 Driven by foreign fund out flows, US Trade Uncertainty 6 Reasons for INR Depreciation: Recent factors behind Rupee depreciation include global drivers such as rising crude oil prices, Trump tariffs, Russia and Ukraine war as well as economic uncertainties, along with domestic pressures such as capital outflows and trade imbalances. In detail: • Trump Tariffs: High US tariffs (up to 50% on steel and aluminium) reduced India’s export competitiveness and weakened Dollar inflows. Delays in finalising the trade agreement have created doubts about future tariffs and export competitiveness, weakening confidence in India’s external sector and adding pressure on the rupee. • China Rotation: A global shift from India’s high valuations toward China’s stimulus-backed markets triggered additional capital outflows. • Strong Dollar: Rising US Treasury yields and slower Fed rate cuts strengthened the Dollar Index against emerging-market currenes. • US Sanctions: New US sanctions on firms linked to Iran and Russia prompted entities with related exposures to hedge Dollars early. • Higher Dollar Demand from Importers: Rising imports especially gold, electronics, and machinery have led importers to buy more dollars, increasing demand for the greenback and contributing to rupee depreciation. • Higher Brent crude prices widen India’s import bill, worsening the trade deficit and weakening the rupee. • High Gold Imports: Gold imports grew nearly 200% in October 2025. Domestic high gold prices further worsened the import bill, and although rising prices boosted the value of gold reserves, it wasn’t enough to offset overall losses. • FII Outflows: Foreign Institutional Investor (FII) withdrew $16.5 billion in 2025, sharply increasing dollar demand during repatriation. • Trade Deficit: India’s record $41.7 billion trade deficit in October 2025 increased Dollar demand for import settlements. Merchandise exports dropped 11.8% in October 2025, while imports surged 16.6%. With exports weakening and imports rising sharply, the trade deficit has widened, adding pressure on the rupee. • Deal Stalemate: Delays in the expected US-India trade agreement created uncertainty and raised the currency risk premium (extra return demanded for exchange risk). • Weak Indicators: Slowing manufacturing Purchasing Managers Index (PMI) and lower corporate earnings eroded foreign investor confidence in Rupee assets. • Confidence in Central Bank (in our country RBI): Modern generations of currency crises seem to be triggered by markets that conduct value at 7 risk assessments of the central bank's balance sheet. This affects the investor confidence. • Forex Reserve: Forex reserve is expressed in US dollars. India's forex reserve declines when US dollar appreciates against major international currencies and vice versa. • Illiquidity: It arises out of short term foreign currency debt becoming larger than liquid foreign currency assets. • Interest Rates: Currency demand can be influenced by the interest rate differential between the two countries. Therefore, a good interest rate equals good capital inflow. Investors get better returns as compared to the US. This will lead to an appreciation of the rupee. • Inflation: Higher inflation in India compared to trading partners erodes purchasing power of Indian Rupee and adversely affects the exchange rate. If the country’s inflation rate is lower than other countries, it will lead to higher demand for its goods and services. • Monetary policy: RBI's interest rate decisions and foreign exchange interventions impact the rupee's strength. • RBI's Market Operations to buy USD to maintain sufficient Forex reserve also affects exchange rate of the INR. • RBI Intervention: The valuation of the Indian currency highly depends on RBI that manages the balance of payments slight modification in which can define the over- or the under- valuation of the Indian currency. • Geo-Political Factors: Geopolitical events, such as wars, trade disputes, and political instability, can create uncertainty in financial markets and affect the exchange rate. These events can influence investor sentiment, disrupt trade flows, and affect commodity prices, all of which can impact the INR-USD exchange rate. • Capital Outflows: Foreign investors pulling out funds from Indian markets reduce Forex reserves, leading to depreciation. • Government Deficits Are High: If the Central and State governments deficit is high, investors lost faith in our economy. • Slow Growth Rate: At slow growth rate, Foreign Institutional Investors (FIIs) won’t dare to invest. • Government Policies: While not strictly a global factor, government policies in both India and the US can have international repercussions that affect the exchange rate: • Capital controls: Restrictions on the flow of money in or out of India can impact the supply and demand for Rupees in the forex market. • Interest rate adjustments: Changes in interest rates by either country’s 8 central bank can shift investor preferences and capital flows. • Trade policies: Tariffs, trade agreements, or disputes can affect bilateral trade and, consequently, currency demand. These policies can signal a country’s economic direction to global markets, influencing investor sentiment and currency valuations. Several other factors that affect the currency stability are some like change in the government set up, introduction of new export and import policies, tax rates and many more. Impact of Deprecation of INR: Positive: • Export Windfall: Exporters’ profit margins increase when Dollar denominated export earnings convert into higher Rupee receipts. Sectors like IT, Pharma, and Chemicals benefit from a weaker INR due to higher global competitiveness and to lead the market with a bullish trend. • Remittance Surge: A higher Rupee return for each Dollar sent motivates NRIs to remit larger amounts to India. • Global Competitiveness: Lower export prices in global markets make Indian goods more attractive and improve overall export competitiveness • Import Substitution: Higher import costs push consumers towards Indian-made alternatives, boosting demand for domestic products. Thus, costlier imports may encourage local manufacturing. • Invest in US Stocks and ETFs (Exchange Traded Funds): Diversifying in USD-denominated assets can hedge currency risk. • Consider Gold Investments: Historically, gold acts as a safe hedge during currency depreciation. • Hedging Strategies: Use currency-hedged funds or forex instruments for protection in volatile periods. • Investors are advised to adopt a long-term perspective and consult a financial advisor before acting on currency moves. Negative: • Import Inflation: A weaker Rupee raises the cost of essential imports, pushing inflation higher. Essential imports like crude oil, electronics, fertilisers become more expensive, pushing up inflation. A weaker rupee raises import costs, contributing to higher domestic inflation. This may result in international investors departing from Indian markets, lowering stock prices and harming domestic investment portfolios. 9 • The value of international investments rises in rupee terms when the rupee declines against the dollar, possibly offsetting losses on domestic investments. • When foreign investors cash in their investments in India, they are given rupees. However, they must convert their rupee assets to dollars. As a result, they will exchange the Rupee for dollars. As a result, demand for the dollar grows while demand for the Rupee falls. As a result, the value of the Indian currency falls versus the U.S. dollar. • Russia and Ukraine war has impacted the economies globally, and India has been no exception. Since the beginning of the war, the value of the Indian Rupee has fallen by more than 3.2%. The crude barrel prices have risen by USD 30 per barrel. • Debt Servicing: Higher Rupee payments for foreign-currency loans increase the debt burden on domestic borrowers. • Widening Deficits: A costlier import bill widens India’s trade and current account deficits even when import volumes remain unchanged. • Capital Flight Risk: Persistent Rupee depreciation erodes foreign investor confidence and increases the risk of capital outflows. • Higher Debt Servicing Costs: Borrowers with foreign-currency loans must pay more rupees to service the same dollar debt. • Reduced Consumer Purchasing Power: Costlier imports weaken domestic demand. • Impact on Stock Market: When the rupee dips against the dollar, there is an increase in the cost of imports. This leads to a direct impact on companies that import raw materials, foreign borrowings are capital intensive. Therefore, depreciation causes an impact on the stock prices of such companies. BSE Sensex and Nifty 50 indexes are down by 4.5% and 4.2% respectively. Since depreciation promotes the rate of inflation, it thereby, eats up the return on investment. Moreover, if the currency is weaker, the investment withdrawal also becomes costlier. This makes it hard for the investors to hold on to their investments for longer duration when there is persistent inflation and currency depreciation. • Exports to US: India’s exports to the US fell by 18–24% relative to shipments to other markets. In December 2025, exports declined 1.83% year-on-year to $6.88 billion. The contraction was sharper in stress-prone sectors: gems and jewellery exports dropped by more than 44% during April–December 2025. • Impact on Travel Plans: As the rupee depreciates, international travel becomes more expensive with higher prices for lodging, meals and other expenses overseas. 10 • “For instance, travel to countries where the local currency is closely tied to the US dollar such as the United Arab Emirates (UAE), can become more expensive when the rupee depreciates against the dollar.” • Countries with weaker currencies than the rupee, on the other hand, may provide better exchange rates to Indian travellers in such a situation. • A weakening rupee also raises operational costs for airlines, particularly for expenses such as fuel, maintenance, and leasing, which are frequently denominated in US dollars. These additional operational costs are then passed on to customers as higher aircraft ticket prices, making air travel more expensive. • Impact on Foreign Education: As the rupee depreciates, students wishing to study overseas would face increased expenditures. Tuition fees, living expenditures and other foreign-currency-denominated costs rise, increasing the financial burden on students and families. • “Countries like the USA, where education costs are denominated in US dollars, are more affected by rupee depreciation. Students studying in these countries will be required to pay additional rupees to cover their expenditures.” • Impact on Consumers: As producers continue to pass on increasing prices to consumers, family savings decrease. As the base rate or benchmark rate rises, RBI rate hikes make their loans more expensive. Finally, the Rupee's depreciation makes imported goods more expensive. Smartphones, laptop computers, televisions, refrigerators, and even certain everyday essentials rely significantly on imported raw materials. Historically, INR depreciation has been a consistent feature since the 1991 liberalisation. From Rs.17 in 1991 to Rs. 92 in 2026, in more than 34 years losing roughly 4.5% per annum. The Indian Rupee has been in the news recently due to its continuous weakening against the US Dollar and increased volatility in global and domestic financial conditions. The International Monetary Fund (IMF) recently reclassified India’s foreign-exchange management regime from a “stabilised arrangement” to a “crawl-like arrangement”, indicating more frequent and gradual depreciation patterns in the Rupee. The Reserve Bank of India (RBI) has been actively intervening in the foreign-exchange market, selling billions of dollars to prevent a sharper fall, but despite its efforts, depreciation pressures remain. Solutions for INR Depreciation: 11 • Foreign Investments: Encouraging foreign central banks, sovereign wealth funds, and endowment funds to invest in Indian government bonds can help stabilize capital flows and strengthen the Rupee. • Foreign Exchange Reserves: The RBI can use its foreign exchange reserves strategically to manage currency volatility. Selling foreign currency reserves can help stabilize the Rupee's value. • Export Promotion: Increasing export incentives and reducing import dependency can help improve India's trade balance and reduce pressure on the Rupee. • Domestic Manufacturing: Boosting domestic manufacturing can reduce the reliance on imports, especially for critical goods, and enhance economic resilience. • Foreign Currency Settlement: Promoting the use of the Rupee for international trade transactions can reduce the demand for US Dollars and stabilize the Rupee's value in global markets. • NRIs and Capital Inflows: Encouraging Non-Resident Indians (NRIs) to invest in India and offering attractive interest rates on their deposits can channel more foreign currency into the country. • Interest Rate Management: The RBI can continue to focus on effectively managing interest rates to balance economic growth with inflation control, aiming for a sustainable equilibrium. • Lowering restrictions on foreign ownership of government bonds. • Promoting FDI. • Increasing borrowing limits for businesses. • Promote Local Currency Settlement (LCS) agreements, especially with major trade partners in Asia, Africa, and the Gulf. • Increase bilateral MoUs for INR-based invoicing and payment, lowering demand for USD in trade. • Deepen Global Market for INR: Develop a global INR forex market so international banks can trade Rupee round the clock. • Support inclusion of Indian G-Secs (Government Securities) in major global bond indices, attracting long-term passive foreign flows. • Simplify KYC, documentation, and on boarding norms for FPIs and global custodians. Enable Indian banks to lend in INR to non-residents, expanding offshore Rupee usage. Promote Masala Bonds for raising INR funds globally. • Strengthen External Sector Stability: Expand currency swap agreements to ensure liquidity support during volatility. • Maintain strong forex reserves and calibrated RBI intervention to smooth disorderly movements. 12 • Promote export competitiveness through structural reforms rather than relying only on depreciation. • Boost Global Acceptance of INR: Continue UPI international expansion, making Rupee-linked digital payments widely accessible. • Position the Rupee for International Monetary Fund (IMF) Special Drawing Rights basket inclusion, enhancing its credibility as a reserve currency. • Domestic Reforms to Support a Strong Rupee: Reduce trade deficit by diversifying export markets and boosting high-value manufacturing. We need to accelerate the reform process that would make the economy resistant to external shocks and changes in economic cycles and currency fluctuations. • One can plan international trips to countries with lower currency rates. One may consider visiting countries where the rupee has strengthened or remains stable. • Investing in US stocks through global mutual funds (MFs) and exchange-traded funds (ETFs) may help to protect against rupee depreciation. • Curb gold imports through policies like gold monetisation and digital gold options. Maintain stable inflation and prudent fiscal policy to attract steady capital flows. • Making the government bonds available to non-resident investors might help attract dollars. • Start believing in make-in-India (Swadeshi) concept and purchasing the made in India products. • India’s import basket majorly consists of oil, gold, electronics, and machinery products. We should understand this and try to restrict the usage of products as mentioned above. • The bottom line is our policy should concentrate on enhancing our capability in manufacturing, promote entrepreneurship, and provide an incentive for innovations. A Way Forward: Short-Term Measures: RBI's market operations to sell dollars, Currency swap agreements with other countries, Monetary Policy Adjustments to attract foreign rationalization to restrict non-essential imports, etc. investment, import 13 • Dollar Sales: The RBI can sell US dollars from its Forex reserves to increase the Dollar supply and slow the Rupee’s depreciation. • Capital Inflow: Encouraging NRI deposits and easing External Commercial Borrowing (ECB) rules can increase foreign-currency inflows. • Higher Interest: Raising policy interest rates can attract foreign investors seeking better returns and strengthen the Rupee demand. Long-Term Measures • Currency Swap: Bilateral currency swap arrangements can reduce India’s dependence on the US Dollar for trade settlements. • Current Account: Stronger exports, lower import dependence, and rationalised non-essential imports can improve the current account balance. • Stable FDI: Improved ease of doing business can attract long-term FDI and reduce dependence on volatile FPI inflows. • Diversifying trade payments: Boosting forex reserves and diversifying trade payments (e.g., using INR for international trade) to strengthen the rupee. (Economic Survey 2022-23) • Export promotion: It can result in reduction of the current account deficit to improve rupee stability. (Rangarajan Committee on Balance of Payments, 1993) • Strengthening of the Free Trade Agreements thereby improving ease of doing business to attract global companies, etc., can help enhance India's exports. • Others: Fiscal Prudence, inflation control, reducing energy import dependence etc. Thus, Managing Rupee depreciation requires a combination of short-term measures and long-term structural reforms to stabilise the currency. Enhancing exports, attracting steady FDI, and decreasing reliance on imports will protect India’s macroeconomic resilience. Rupee Outlook: Stability by Design, Weakness by Choice: The INR slide 92 per USD on 29/01/2026 is not a market aberration. It reflects a policy equilibrium in which the Reserve Bank of India has chosen to smooth volatility rather than defend levels, even as foreign portfolio outflows, importer demand for dollars, and geopolitical risk converge. In the near future, pressure is structural rather than speculative. Foreign investors have sold more than $3 billion of Indian equities in January 2026 alone, making the currency unusually sensitive to incremental dollar demand. Importers are covering exposures without corresponding exporter 14 sales, while exporters are holding back receipts in expectation of further depreciation. The result is a one-sided market that intermittent state-run bank selling can temper but not reverse. What is striking is that this has occurred without a broad-based dollar rally. The dollar index has remained range-bound, yet the rupee has been the weakest performer among major Asian currencies on several trading days. That divergence points inward. India’s widening current account deficit, equity-linked capital outflows, and uncertainty over trade relations with the United States are doing more damage than global financial conditions. In the long run, the rupee’s outlook is less about exchange-rate management and more about macro fundamentals. Sustained currency stability requires a narrower current account deficit, deeper non-debt capital inflows, and a manufacturing and services export base that is less sensitive to global financial cycles. Trade agreements with Europe may help at the margin, but they are not substitutes for domestic productivity gains. There is also an implicit acceptance within policy circles that gradual depreciation is not inherently harmful. What is being avoided is not weakness, but volatility. As long as inflation remains contained and external liabilities are manageable, a softer rupee is seen as an adjustment mechanism rather than a failure of policy. In the short term, the rupee remains biased weaker with intermittent intervention to prevent overshooting. In the medium term, fiscal signals and trade clarity will determine whether depreciation stabilises or continues. Over the long term, the currency will track India’s ability to convert growth into durable external competitiveness. The RBI’s actions indicate that it is prepared to live with the answer. Conclusion: The rupee’s fall stems from weak exports, high imports and sustained capital outflows. Strengthening it requires boosting export competitiveness and reducing import dependence. Stable macroeconomic policies and wider rupee-based trade will help restore confidence. Depreciation of the Indian Rupee is a multifaceted issue influenced by a mix of domestic and global factors such as inflation, trade deficits, interest rates, and economic growth trends. While a weaker rupee can potentially enhance the competitiveness of Indian exports and initiate gains in sectors like IT, it simultaneously prompts higher import costs, exacerbates inflation, and strains investor confidence. The Indian economy has shown resilience through various phases of fluctuating currency value, driven by key measures from the Reserve Bank of India, which involves adjusting interest rates and executing market interventions aimed at stabilizing the rupee. Despite periods of economic recovery and growth, the future trajectory of the rupee remains contingent on persistent challenges, including global economic conditions and commodity price fluctuations. As India navigates its path forward, maintaining a balance between leveraging 15 opportunities presented by a depreciating currency and mitigating its adverse impacts, this endeavour will be crucial for promoting economic stability and growth in the long run. Through strategic policy reforms and economic planning, there is potential for the Indian Rupee to recover and reinforce its standing in the global market. References: 1. Federal Reserve History. "Creation of the Bretton Woods System." 2. Economic Survey 2025-26. 3. www.drishtiias.com/daily-updates/daily-news-analysis/depreciation-of indian-rupee-3 4. www.bookmyforex.com/blog/1-usd-inr-1947-till-now/ 5. https://visionias.in/current-affairs/monthly-magazine/2025-02 22/economy/rupee-depreciation 6. https://www.pmfias.com/rupee-depreciation/ 7. Depreciation of Rupee: Impact on Indian Economy: My Guest Lecture to M.B.A Students at Vaag Devi PG College, Hanamkonda. Published in Research Gate. 8. Rupee https://www.pmfias.com/rupee-depreciation/outlook: Stability by design, weakness by choice, Policy Circle Bureau – 24/02/2026. 16