The Indian Rupee has stood out as one of Asia’s most resilient currencies in 2024, even amid global challenges, including geopolitical tensions in the Middle East and the strong performance of the US Dollar. Pankaj Chaudhary, Minister of State (MoS) for Finance, highlighted this achievement in a recent statement to the Lok Sabha, crediting India’s robust economic fundamentals for the Rupee’s relative stability.
Rupee’s Market-Determined Nature
In his written address, Chaudhary emphasized that the Rupee’s value is determined by market forces rather than a fixed target or level. As of November 19, 2024, the currency had depreciated by 1.4% against the US Dollar. He attributed this modest decline primarily to the Dollar’s strength, with the Dollar Index rising by approximately 4.8% this year, peaking at 108.07 on November 22—its highest in over a year.
Comparisons with Other Currencies
Despite global headwinds, the Rupee has outperformed many other Asian and global currencies. For instance, the Japanese Yen and South Korean Won saw declines of 8.8% and 7.5%, respectively, during the same period. Among G10 currencies, only the British Pound escaped significant depreciation, with others recording losses exceeding 4%.
“The relative stability of the Rupee reflects India’s resilient economic fundamentals, macroeconomic stability, and financial robustness,” Chaudhary stated.
Impact of Geopolitical Tensions
Geopolitical uncertainties, including tensions in the Middle East and the aftermath of the US elections, have further complicated the global economic landscape. However, the Rupee’s performance amidst these challenges underscores its resilience.
Economic Implications
A depreciating Rupee has mixed effects on the Indian economy. While it raises the cost of imported goods, it can enhance the competitiveness of Indian exports. The extent of the impact on domestic prices depends on the pass-through of international commodity prices to local markets.
RBI’s Vigilance
The Reserve Bank of India (RBI) closely monitors factors influencing the USD-INR exchange rate, including global monetary policies, economic data, OPEC+ decisions, and geopolitical developments. The RBI intervenes selectively in the foreign exchange market to ensure stability and curb excessive volatility.
Fiscal Discipline
To maintain economic stability, the government remains committed to fiscal prudence. Chaudhary reiterated the government’s goal to reduce the fiscal deficit to below 4.5% of GDP by FY26, balancing fiscal flexibility with resource allocation for social and developmental projects.
Decline in FDI Inflows
Foreign Direct Investment (FDI) inflows, influenced by factors such as macroeconomic conditions, global investment climate, and regulatory policies, have seen a significant decline. Over the past five financial years, FDI dropped from $43 billion in 2019-20 to $10.1 billion in 2023-24, signaling potential areas for policy attention.
Outlook
Despite global uncertainties, the Rupee’s relatively stable performance showcases India’s strong economic fundamentals and sound policy framework. As global developments continue to unfold, maintaining this balance will be crucial for sustaining economic resilience.
You Might Be Interested In:
