Depreciation of Indian Rupee - A short commentary
On 28th August 2013 the Indian Rupee plunged to an all time low of 68.85 to the US Dollar – a depreciation of nearly 25% since January 2013. Let’s examine some of the issues that brought the rupee to such a state.
We’ll start by going back in time when after independence in 1947, India adhered to socialist policies. Attempts were made to liberalise the economy in 1966 which was reversed a year later in 1967. Another attempt was made in 1985 by the then Prime Minister Rajiv Gandhi which came to a halt in 1987. In 1991, after India faced a Balance of Payment crisis, it had to pledge 20 tonnes of gold to the Union Bank of Switzerland and another 47 tonnes to the Bank of England as part of a bailout deal with the International Monetary Fund. Additionally the IMF required India to undertake a series of structural economic reforms. The economic liberalization of India started on 24th July 1991 which included policies such as opening for international trade and investment, deregulation, initiation of privatisation, tax reforms and inflation control measures. These policies started showing results when in 2007 India recorded a GDP growth of 9%. However, the economy slowed to around 5% in 2012-13 as compared to 6.2% in the previous fiscal (considering that there was a global financial meltdown in 2008 the figure of 6.2% is comparatively okay). India’s GDP which had grown by 9.3% in 2010-11, went south by nearly 50% in 2012-13 in a span of just 2 years. (GDP Graph)
Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets to protect its economy and to achieve self-reliance. Foreign trade was restricted and subject to import tariffs, export taxes and quantitative restrictions. Since independence, India’s Balance of Payment had been negative until 1991 (India's Balance of Trade Graph). After liberalisation, India’s exports have risen covering 80.37% of its imports in September 2013, up from 66.20% in 1990-91.
At this
We’ll start by going back in time when after independence in 1947, India adhered to socialist policies. Attempts were made to liberalise the economy in 1966 which was reversed a year later in 1967. Another attempt was made in 1985 by the then Prime Minister Rajiv Gandhi which came to a halt in 1987. In 1991, after India faced a Balance of Payment crisis, it had to pledge 20 tonnes of gold to the Union Bank of Switzerland and another 47 tonnes to the Bank of England as part of a bailout deal with the International Monetary Fund. Additionally the IMF required India to undertake a series of structural economic reforms. The economic liberalization of India started on 24th July 1991 which included policies such as opening for international trade and investment, deregulation, initiation of privatisation, tax reforms and inflation control measures. These policies started showing results when in 2007 India recorded a GDP growth of 9%. However, the economy slowed to around 5% in 2012-13 as compared to 6.2% in the previous fiscal (considering that there was a global financial meltdown in 2008 the figure of 6.2% is comparatively okay). India’s GDP which had grown by 9.3% in 2010-11, went south by nearly 50% in 2012-13 in a span of just 2 years. (GDP Graph)
Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets to protect its economy and to achieve self-reliance. Foreign trade was restricted and subject to import tariffs, export taxes and quantitative restrictions. Since independence, India’s Balance of Payment had been negative until 1991 (India's Balance of Trade Graph). After liberalisation, India’s exports have risen covering 80.37% of its imports in September 2013, up from 66.20% in 1990-91.
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