Step up exports to arrest rupee’s persistent slide

Brajesh Kumar Tiwari

Associate Professor, AB Vajpayee School of Management & Entrepreneurship, JNU

ON Monday, the rupee traded at a record low of 82.72 to the US dollar, despite the Reserve Bank of India continuing to sell forex reserves to support the Indian currency. India’s foreign exchange reserves have decreased from a year before by around $100 billion. It is anticipated that the rupee would continue to be under pressure in the near future due to the uncertainty throughout the world, high commodity costs and increasing US interest rates.

The rupee has depreciated by 10 per cent since the beginning of the year. Continuous foreign fund outflows from the Indian financial market and the rising crude oil prices have added to the pressure on the rupee.

In the last two-and-a-half years, the global economy has seen two major setbacks — the Covid-19 pandemic and the Ukraine war. India is no exception. Other emerging market (EM) currencies and advanced economy (AE) currencies are also depreciating with respect to the US dollar.

The economic strength of any country is demonstrated by the value of its currency. In this globalised world, what the value of the currency of any country is against the US dollar not only affects the economy of that country but also the prices of many things in the market.

According to the International Standard Organisation list, there are a total of 180 currencies around the world, even as the US currency has become a global currency. Today, the dollar is involved in 82 per cent of the trade around the world and 64 per cent of the foreign exchange reserves held by central banks around the world are in US dollars. This is why the value of the rupee against the dollar shows whether the Indian currency is strong or weak.

Even if we do not take seriously the fall and rise of the rupee’s value, they have a big impact on our life. The depreciation of the rupee directly affects the country’s economy: it will make the import of petroleum products expensive and the freight products costlier. This will have a bearing on inflation. All loans taken in foreign currency and the interest paid on them will suddenly increase. Studying abroad will also be costlier.

Since Independence, the value of the rupee has been dropping continuously. In 1948, one dollar was available for Rs 4. There was no debt on the country when the First Five Year Plan was implemented in 1951; the government started taking loans from abroad, following which the rupee also started depreciating.

The value of the rupee depends entirely on its demand and supply; import and export also have a direct effect. India imports more than it exports; a country that imports more than it exports has more demand for its dollar. India is the world’s third largest oil consuming and importing country, with over 80 per cent dependence on imports to meet its crude oil requirements.

It is a myth that a falling currency helps in increasing exports. According to a report by the Bank of America Securities, India’s current account deficit may be $105 billion in 2022-23, up from $86 billion last year. At present, India is dependent on countless imports, including heavy machinery and other items that can be manufactured domestically.

In such a situation, it is necessary to stop the falling value of the rupee. As a policy measure, the RBI, on September 30, increased the repo rate by 50 basis points to 5.9 per cent. This decision is considered positive from an economic point of view. It aims to spur economic growth while keeping high inflationary pressures under control.

Though the Central Government has given assurance of making every effort to stop the fall of the rupee, now it will have to take concrete and tough steps. If the government tries to convert its economy independent of petroleum, then we can save a huge part of foreign reserves and, for this, we should consider alternatives to oil.

The US Federal Reserve’s rate-hiking cycle has sparked the dollar’s gain, which has caused the dollar index to rise by over 11 per cent in 2022 so far, reaching a 20-year high. Since October 2021, there have been consistent outflows of international portfolio capital because of the superior risk-free returns offered by the US capital market.

Direct and corporate taxes on the big earners should be increased and inflation brought down by reducing indirect tax. This will increase demand in the market and stabilise the economy, thus boosting the confidence of foreign investors.

Measures like internationalising the Indian rupee and settling trade agreements between India and other nations in rupees could curb the currency’s fall. Foreign direct investment (FDI) should be encouraged in Indian industries. The money that comes in the form of FDI has long-term benefits. As the inflow of the FDI increases, the value of the rupee will also increase.

India has to export goods and services worth at least $2.5 trillion if it wants to make its economy reach the $5-trillion mark by 2025 since exports currently make up around 25 per cent of the overall gross domestic product (GDP).

According to a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), India has the potential to become a major manufacturing powerhouse, contributing more than $500 billion yearly to the world’s economy by 2030.

The government must move strategically towards controlling imports and increasing exports. For this, an efficient business environment can be created by reforming the land and labour laws. Because of the complexity of tax and customs laws, it is sometimes less expensive to import goods than produce household appliances.

India’s economy is based on agriculture; employment avenues must be created in the rural economy too. According to a report by Grant Thornton (an assurance, tax and advisory firm), there is a vast pool of opportunities in various regions of rural India.

Implementation of measures such as PM Gati Shakti, single-window clearance, new National Logistics Policy and GIS-mapped land bank are expected to boost the manufacturing sector and exports. 

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