Key Takeaways
- Trade Deficit: India imports more than it exports, increasing demand for dollars.
- Fewer Investments: Less foreign money entering India weakens the rupee.
- Strong Dollar: Global crises make the dollar stronger, weakening the rupee.
- Low Forex Reserves: RBI has fewer dollars to stabilize the rupee.
- Inflation: High inflation in India reduces the rupee’s value.
- Impact: Costlier imports, expensive foreign travel, and higher loan repayments.
- Solutions: Boost exports, attract investments, reduce imports, and build forex reserves.
The Indian national Rupee is getting weaker year by year. It’s concerning how our currency is getting weaker than the other currencies worldwide. The Indian National rupee was one of the worst performers among all the Asian currencies in recent years. Last year in January $1 was equal to 83 rupees; in January 2025, 1 year later $1 equals 86.57. In the previous year, our currency got weaker by 4.30% which is alarming news for our economy.
To understand why this is happening we need to understand and explore economics and global factors that influence currency value.
1. Trade deficit:
Trade deficit simply means that India imports more goods
than it exports, this creates a deficit between imports and exports. In
December 2024 India’s export was $59.95 billion while imports were only $38.01 billion.
So the deficit was $21.94 billion. The trade deficit increased the demand for the dollar since India needed more callers to pay for their imports. So when demand for the dollar goes up its value strengthens while the rupee can in comparison.
2. Drop in Foreign Investments:
Foreign investments are the major source of dollars for India when foreign investors invest in Indian stocks businesses and bonds they bring dollars in
India the investment decline due to :
● Global uncertainties like war and inflation
● Better investment opportunities in other countries, like higher interest
rate in USA
3. The Global strength of the dollar:
The US dollar is considered a haven currency in times of global crisis or any other uncertainties people prefer holding US dollars because they trust the stability of the United States of America and their currency increases the value of the dollar.
For example: Recently US inflation fear and Geopolitical tension have made
the dollar stronger $1 became strong the other currencies worldwide became weaker including the Indian national Rupee ₹
4. Decline in India’s Forex reserve:
The RBI maintains a forex reserve to manage the value of rupees; this reserve consists mostly of dollars.
● RBI sells the dollar to stabilize the rupee when it starts getting weaker too much.
● However India’s forex reserve has dropped by $50 Billion since
November 2024.
● With fever reserve RBI has less power to support the rupees which
leads to further weakness.
5. Inflation and economic growth :
Higher inflation in India compared to the US reduces the rupee’s purchasing power. At the same time if India’s economic growth slows down it makes the rupee less attractive to the investors.
What does this mean for India?
1. Imports became costlier: Products like oil which India imports in
large quantities became more expensive. This increase in fuel prices and increases in fuel prices are directly related to the increasing transportation cost which will increase the price of goods and which lead to inflation.
2. Travelling abroad will cost more: Travelling in countries like America has become more expensive for Indians.
3. Foreign loans will cost more: Companies that have borrowed in the dollar phase have higher repayment costs.
How can India make rupees strong?
● By boosting exports by increasing the sale of Indian goods abroad can help in earning more dollars.
● By creating a favourable environment for global investors, we can bring more dollars to our country.
● By promoting the domestic production of essential goods like oil and electronics.
● Ensuring healthy foreign currency reserves gives the RBI more control over the rupee value.
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