New Delhi: The value of the Indian rupee has experienced a steady decline over the past 40 years, averaging an annual depreciation of approximately 3.5 percent. This downward trend commenced following the economic reforms of 1991, which included two significant devaluations of the currency under the leadership of Dr Manmohan Singh, thereby establishing a trajectory of gradual depreciation. Although various political events, including wars, sanctions, and domestic reforms, have induced temporary fluctuations, the overarching trend of depreciation has remained stable at around 3-3.5 percent per annum.
Significant periods include the 1990s, characterised by India’s nuclear tests and subsequent global sanctions, which did not substantially disrupt the rupee’s consistent decline. In the 2000s, a time of relative political stability and economic expansion, the rupee saw a slight appreciation due to increased foreign capital inflows, particularly in the rapidly growing services sector.
The years 2004-2008, during the tenure of UPA 1, represented an exception, as the rupee appreciated by 4 percent. However, following this period, the trend resumed, with the currency depreciating by 21 percent from 2009 to 2013. Under the administration of Prime Minister Narendra Modi, during both NDA 1 and NDA 2, the rupee continued to follow the historical pattern of depreciation, albeit at a marginally accelerated rate.
Despite these fluctuations, the overall decline remains consistent, with projections indicating an average annual depreciation of 3.5 percent for the rupee in the future. This enduring trend underscores the influence of broader economic factors, such as inflation differentials and India’s current account deficit, rather than transient political events or governmental measures.
As the Indian rupee touches its lowest 86/USD, Editor-in-Chief Shekhar Gupta explains why its fall is a predictable economic trend and why 3.5 percent annual depreciation is not as alarming as the headlines suggest. From the 1991 devaluation to today, he analyses global markets, and economic reforms that shaped the rupee’s value.
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