Independence Day: How the rupee went from

less than 4 a dollar in 1947 to 83 today

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The Indian rupee on Monday opened below the 83-mark against the
dollar, the lowest for the currency since October 2022 when it had dipped
to a historical low of 83.26. After India became independent, one dollar
could be bought at less than four rupees. As the country marks 76 years of
freedom, the rupee has gone down by nearly 20 times. Devaluations, trade
imbalances, budget deficits, inflation, global fuel prices, economic crises,
etc. made the rupee constantly depreciate against the dollar. The story of
the rupee's transformation is also the story of India's transforming
economy as it went through various ups and downs.

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From its humble beginnings to becoming an influential player in the global

financial landscape, the evolution of the Indian rupee is a testament to the
nation's economic and policy shifts and global integration.

The rupee has been hovering around 82 against the US dollar. In the past
year, the Indian currency has remained volatile and has hit record lows.
The depreciation can be attributed to a positive dollar and a weak tone in
domestic markets. The selling pressure by foreign investors may also
weigh on the rupee.
 However, it was not the case since the beginning of the Independent India
era. Post-independence, the rupee was pegged to the British Pound. This
created a stability in trade and financial transactions. On the other hand,
the arrangement restricted the country's monetary flexibility
and independence as it compelled India to rely on the pound’s strength
instead of its own economic fundamentals. After independence, India had
chosen to adopt a fixed rate currency regime. The rupee was pegged at
4.79 against a dollar between 1948 and 1966.

1960-70s war impact

The 1960s and 70s came as a period where the currency witnessed a lot
of fluctuations. On the macroeconomic front, multiple factors including
global economic instability, wide fiscal deficits and high inflation, led to a
devaluation of rupee.
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The food and industrial production was also affected in the 60s when India
used to be a food-deficit country importing grains to feed its citizens. This
issue was further escalated by the 1962 Indo-China and India-Pakistan
war. The war also led to increased spending. During that period, the Indian
economy was faced with high import bills and was close to default as
the foreign exchange reserves had almost dried up. All this impacted the
currency negatively due to which it depreciated. The geopolitical tensions
eroded rupee's purchasing power and affected the average citizen's
 livelihood.

Two consecutive wars resulted in a huge deficit on India's budget, forcing

the government to devalue the currency to from Rs. 4.76 to 7.57 against
the dollar. The oil crisis in the 70s strained the Indian rupee further. Rising
oil prices led to trade deficits and increased demand for foreign exchange
reserves.
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The era of economic liberalisation

The 1990s marked a turning point for the Indian economy, as it embraced
liberalisation and globalisation. The currency was devalued in order to
strengthen exports and attract foreign investments.

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In 1991, India faced a serious balance of payment crisis and was forced to
sharply devalue its currency. The country was in the grip of high inflation,
low growth and the foreign reserves were not even worth enough to meet
three weeks of imports. Under these situations, the currency was devalued
to Rs. 24.5 against a dollar. The first devaluation of the rupee of 7-9%
against major currencies took place on July 1. The second devaluation of
about 11% happened on July 3.

In the following years, the rupee experienced fluctuations due to global

economic uncertainties, trade imbalances, and changing oil prices.
The Reserve Bank of India (RBI) also intervened with measures to
stabilise rupee, such as currency swaps and forex reserves management.

Then came the era that witnessed advancements in technology. This

prompted India to introduce new banknotes with enhanced security
features to check counterfeiting. Additionally, the government's push
towards a digital economy also bolstered rupee's electronic transactions
and reduced its dependence on physical currency.
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Rupee in the 21st century

The 21st century saw rupee's steady march towards internationalisation.
It became one of the top 15 most-traded currencies globally. Bilateral
currency swap agreements with other nations further cemented its
prominence on the global stage.
However, 2008 witnessed a huge setback for currencies worldwide. The
global financial crisis was a worldwide crisis which had a cascading effect
on the Indian economy. This was the most severe crisis post the Great
Depression.

The rupee depreciated significantly against major currencies, reflecting

the interconnectedness of economies and the vulnerability of emerging
markets during a crisis. Recession in 2010 also had a similar impact on the
economy, hence, the currency dipped further.
The government however tried and India successfully recovered from the
recession. Despite its successes, the rupee encountered challenges such as
inflation, trade deficits, oil prices and geopolitical uncertainties. These
factors occasionally led to depreciation, causing concerns for both
policymakers and citizens.

In 2020, the world encountered an unprecedented crisis due to Covid-19.

The pandemic unleashed challenges on global economies, and India was
no exception. The Indian currency faced volatility as foreign investments
retreated. However, the nation's resilience and proactive measures helped
it recover faster than anticipated.

To address challenges and enhance stability, India has embraced financial

reforms. The introduction of currency futures and options provided
avenues for risk management. As India aspires to become a $5 trillion
economy, the rupee's trajectory remains closely tied to the nation's
economic growth.

In today’s time, India’s inflation has been a cause of concern for the
policymakers and investors along with consumers. Inflation, often
influenced by factors like food prices and fuel costs, poses challenges for
the rupee's value. Maintaining price stability while promoting economic
growth requires a delicate balance of monetary policy.

A consecutive hike in policy rates also impacted the value of rupee. Hence,
it can be said that from recession to inflation, the value of money has
depreciated considerably.

India is trying to turn the rupee into a global currency, a move aimed at
reducing dependence on the US dollar and increasing India's global heft.
The RBI has allowed more than a dozen banks to settle trades in rupees
with 18 countries since last year,

India's recent agreement with the United Arab Emirates to trade in local
currencies is a major step towards internationalising the rupee, after
Russia last year agreed to sell crude oil to India in rupees after the West
imposed sanctions on settlement in dollars. Bangladesh and India too have
launched trade transaction in rupees.

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