VOI World/ Astha Pandey
The economic ripple for India amidst the uncertainties around the migration policies as well, is striking. The Indian Rupee has slumped to a historic low against the US Dollar. This is the steepest one day fall in the last three months.
However, the US Federal Reserve supports a stronger dollar and also places pressure on dollar-linked currencies like the rupee. The Indian economy is still growing at a robust rate compared with many emerging markets. The external vulnerabilities still remain the same, large trade deficits, dependence on energy imports and sensitivity to global monetary conditions. When the rupee weakens, any goods or services India imports become more expensive. Importers’ costs go up and that pressure often passes on to consumers as higher prices for imported goods or raw materials. Many industries in India depend on imported components, therefore the cost‐pressures trickle in across sectors. On the other side, a weaker rupee also makes Indian goods cheaper in foreign currency terms, potentially boosting exports.
The Reserve Bank of India has to balance growth and inflation. A weak currency tends to raise inflation via higher import costs, which might push RBI to raise interest rates or tighten policy but if growth is weak, tightening could hurt the economy.
One such ripple, for the Indian rupee, is alarming as foreign investors, one such rapidly depreciating currency is a risk, for their investments and currency losses can wipe out the returns. This can reduce the future foreign capital inflows into the Indian equities or bonds.
Even for the domestic savers, the risk around the inflation rises because imported cost inflation eats purchasing power. Also, an individual holding the foreign‐asset exposed in the USA with a weaker rupee can increase their rupee value but most ordinary savers hold rupee assets and so they might face higher inflation pressure.
For India, given its heavy reliance on imports, especially in energy sectors and the other ambitions to grow and attract investment, managing the rupee’s movement, inflation and external flows becomes especially vital. The true challenge lies in reinforcing economic fundamentals, boosting domestic production, and strengthening investor confidence so that India’s growth story remains resilient, even when the currency stumbles.
