The Indian Rupee Keeps Falling While New Delhi Scrambles for Solutions

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Kunal Patil / Hindustan Times via Getty Images

Onlookers standing outside the Bombay Stock Exchange react as they watch share prices on the facade of the BSE building in Mumbai on Aug. 19, 2013

The rupee is in trouble, and nobody seems quite sure what to do about it. The Indian currency closed at an all-time low of 64.11 against the U.S. dollar on Wednesday alongside a tumbling market, feeding widespread anxiety over the fact that the government has yet to curb the currency’s downward trajectory since it started tumbling in May. On Wednesday, Deutsche Bank issued a report saying the rupee may reach as low as 70 in the coming months.

It’s the latest bit of unwelcome news in a bad few years for the Indian economy, which has slowed from its rapid 9% growth rate to a forecast of between 5.5% and 5.7% for this fiscal year.

Why is it the rupee’s turn to take a beating? Part of the problem is not India’s alone. With the U.S. Federal Reserve expected to start tapering off a stimulus program that has pumped cash into the global economy, investors have grown wary of the emerging markets they became so fond of in recent years. Countries running their own current account deficits (CAD) have borne the brunt of the mood swing: currencies in India, Brazil and Indonesia, among others, have seen drops as investors pull money out ahead of the Fed’s anticipated tightening.

(MORE: The Clash Between Two Famous Indian Economists Echoes Larger Battle)

That problem may be global, but the fact that the Indian economy has some homegrown structural problems has exacerbated the flight of foreign funds. “If you’re an investor, you want to put your money where there’s going to be growth,” says Daniel Martin, an economist with Capital Economics in Singapore. “The shine has come off India. It’s not the glaring success story it was a few years ago.”

That’s not a new assessment, but it’s important now because it means that the core issues slowing down Indian growth are now hurting its currency — and, by proxy, Indian consumers who want to buy, say, an imported phone, or foreign carmakers that need to import parts. Those fundamental weaknesses — poor infrastructure, unreliable power supply, difficulty in securing land and lots of sticky red tape — are all keeping foreign investment out of the country, and that’s a problem for a country that imports far more than it exports and thus needs to finance a large current account deficit. When the CAD widens, the rupee’s decline accelerates further. So even at a time when many emerging markets are looking risky to investors, India is looking riskier than most.

(MORE: In India, Gold Glitters but Brings Economic Woes)

The government is attempting several things to stem the rupee’s decline, including trying to reduce the CAD by increasing import taxes on gold and limiting how much money Indians can send abroad. In July, after the rupee hit an earlier low, the Reserve Bank of India made moves to raise interest rates to tighten liquidity in the domestic market. That didn’t help, and this week, the bank changed tack, announcing it would take action to flow more cash into the economy to bring interest rates down and usher in growth. The move caused markets to open on Wednesday on a note of optimism, but that fizzled by the end of the day.

Some analysts worry that this kind of policy turnaround could be read as a further sign of weakness by investors. Then again, longer-term lower interest rates are in keeping with what many say will ultimately help get the economy back on track. Some even speculate that the rupee’s decline could have unintended but welcome benefits. Capital Economics, in a report published on Aug. 20, pointed out that a weaker rupee could help exports grow — in short, “exactly what is needed over the long run to narrow the current account deficit and reduce India’s dependence on volatile financing from abroad.”

MORE: In India, Development Fuels Disputes Over Land

45 comments
syedmmd
syedmmd

we are the Indian busy in politics ,not in develop our agriculture our science ,we love that product which other country produce because that product called "imported item" . we love imported items ,not good quality. If we use our minerals  , our water , our land , our ideas ,we can do any things because we have every things . 

MeriPat1
MeriPat1

@TIME The worst financial gravitational pull as the Rupee comes sliding down.

paramendra1
paramendra1

The 1991 crisis gave a positive jolt. I hope this one does as well. 

Steve Harvey
Steve Harvey

the plaque of emergine markets, corruption. at least they have a press that helps report it.

Anons
Anons

Anyone has any idea what modi is going to do ? when he is given power?


Ian Magus
Ian Magus

How's the Hylian rupee doing? ;)

Churchill Shah
Churchill Shah

Kindly ask ITC to launch their business into Ice Cream, Mineral water, Catering, Tea, Coffee, Tomato Ketch up, butter, Soft drinks like Coca Cola Pepsi, Juices such as (Orange, grapes, Mango of Real & Tropicana products), Sweet Oil, Hair Oil, hair dye, Shaving Cream, detergents (like Ariel, surf excel), scouring bar like Vim, washing Rin bar, Antiseptic liquide like Dettol. Try to introduce products like Gillette shaving razor, shaving Cream, brush & blade. Launch merchandises like Frooti & appy Juices, Tooth paste, Tooth brush, Tooth powder, Mouth fresh, Mouthwash like Listerine, Hand wash products like Life buoy, Cough medicine like Vicks & Halls, Vicks Vaporub & Zandu Balm which is indicated for use on the chest & throat for cough suppression due to the common cold or on muscles & joints for minor aches and pains , Halls, Nutritional foods like Horlicks, Boost, Corn Flakes, Milk products like Badam milk, Cow Pure Ghee, Butter Milk, Cheese, Honey, Chewing gum like orbit (wrigley), children nappy pads, whisper sanitary napkins, Gutkha like Manikchand, Crane Supari, Mosquitoes killing products like Good knight, All Out. Don’t forget to enlarge ITC business in Rice, dal, sugar and bread products as well. In 1970 1$ = Rs. 4 Today 1$ = Rs. 65.50 Estimated 1$ by end of the year = Rs. 70 Dollar is not getting stronger but rupee is getting weaker & nobody else is responsible except us! How can we change it? 1. A Cold Drink such as Coca Cola, Pepsi produced for 70-80 paisa sold at Rs. 9-10! Stop drinking them, go to soda shops & drink lemon juice, lassi etc. instead of coke, pepsi,limca. else let us all request ITC, Reliance industries to launch products such as Coca Cola,pepsi. 2. Soaps Use Soaps of cinthol,santoor,medimix, neem instead of lux,lifebuoy,rexona,liril,dove,pears,hamam,lesancy,camay,palmotive! 3. Toothpaste-Use Neem, babool, vicco, dabur,promise instead of colgate,closeup,pepsodent,cibaca 4. Toothbrush Use prudent,ajanta,promise instead of colgate, close up,oral-b,pepsodent,forhans 5. Shaving cream-Use godrej ,emami, vjohn Instead of palmotive,oldspice,gillete. 6. Blade-Use supermax,topaz,laser,ashokaInstead of seven-o-clock,365,gillete 7. Talcum powder-Use santoor,gokul,cinthol,boroplus Instead of ponds,old spice,johnson,shower to shower. 8. Milk powder Use indiana,amul,amulya' verka Instead of anikspray,milkana,everyday milk, milkmaid 9. Shampoo-Use Nirma, Velvette Instead of halo, all clear,nyle,sunsilk,head and shoulders,pantene 10. Mobile connections-Use bsnl,airtel,reliance Insteaf of vodafone, docomo 11. Food-Eat at jay bhavani, TGB, local restaurants Instead of macdonld, subway,pizza hut, kfc 12. Mobile Use micromax, karbonn,virgin Instead of samsung,apple, htc,sony, nokia 13. Bikes-Use hero, royal enfield Instead of honda, yamaha 14. Footwear-Use bata, chavda Instead of nike, reebok,adidas,converse 15. Jeans and shirts Use spykar, k-lounge Instead of lee,levi's,U.s. Polo,pepe, benetton 16. Watch Use titan, sonata ,fasttrack Instead of tommy,Citizen,zodiac,tissot Don't use items from Hindustan Liver or Uniliver. It is a foreigncompany. And we blame politicians Now go and check the things you use and ask yourself how much do you contribute to the decreased value of RUPEE None of the indian products are subordinate in quality, they might look a bit less fancy!! Why is china so ahead, because the whole world uses made in china items. We indians could atleast use made in india items! Change comes from within! Start the change by simply changing your mobile network and spread the change by broadcasting this msg to everyone on your contact list! I did my part, You do yours and let's see by the end of this year Does 1$ become Rs. 70 or it becomes Rs. 50.

Badih Girgis
Badih Girgis

We decided we are the Egyptian people after standing next to the Egyptian army of the great and the Egyptian police valiant decided to dispense once and for all so-called aid the U.S., but we have decided to close the U.S. embassy in Egypt until it stops the U.S. administration for supporting and sponsoring and exporting terrorism to our beloved country Egypt, which scared him and not, as you see you are your country America

Cary H Scott
Cary H Scott

Birth control would be a good start. Cleaning up the rampant toxic pollution wouldn't hurt. Better police presence and accountability always a plus. JS~

limmil
limmil

Its a difficult situation if we keep voting the congress... 

Its way easier than one can think... if we choose the hope of India in next election that is Narendra Modi...

Bst Sara
Bst Sara

it's exactly what happened to Iran rials ! it's destroys the economy :-(

Kim Taylor
Kim Taylor

The world is destroying itself! And for what? We must learn to accept, respect and love one another! Yeh right! It's not hard if you really give it a try!

Tanya Gupta
Tanya Gupta

Indian morals and integrity have fallen a way more down! It is not a safe country to invest in unless the corruption and greed is in check, and rules are made that put safety of people as a top priority!

Rahul Chellani
Rahul Chellani

And this another one of the scams !! The congress knows its too hard for them to be back in power in 2014, so they are screwing the rupee majorly, to get the maximum value out of their ill-gotten wealth in the Swiss bank accounts !

rajivparikh
rajivparikh

Maybe this will finally create momentum to create real reforms and reduce corruption.  While capital restrictions are actually hurtful, a dropping rupee will send a signal that it is time to drop fuel subsidies, stop protecting state industries, reduce growing red tape/regulations,  and slow the flow of black money flowing overseas.  

Openminded1
Openminded1

try opening up some 7-11.s or motels in your own country it may help the the economy of india . how do you guys know who is a realative if everyone is named Patel? Must be by smell i guess.

GrahamEardley
GrahamEardley

@TIME run on gold to be expected? Or even the US$ now that would have a certain amount of irony?

vik.karode
vik.karode

May be this will rise public to get rid of the corrupt government and businessmen.

omdevkota
omdevkota

@TIME seems its a problem for investors to spend in India coz of political & sociological reasons . Been to some part of India & much rural

abbas_sman
abbas_sman

@TIME That is the result of jumping into US Kangeroo pouch.Welcome to the Pakistan club

nekware
nekware

@TIME use dollars, duh, Econ degree for the win

RabbMeher
RabbMeher

@TIME It's Easy, Boycott foreign Goods. Promote Indian Things, Improve Quality of products India creates for Indians. BE Indian, BUY Indian

AlanFrench
AlanFrench

Why don't they stop importing gold altogether? Its just luxury..rather they are more interested in strangling the common man!!

IrmaHawks
IrmaHawks

How to earn 300 us dollar per day its unbelievable but its work Hope to see you around here more often.== > w­w­w.B­a­y­8­7.ℂ­o­m


shukradeva
shukradeva

Hey all Indians - Keep voting Mafia thugs aka Congress and then complain about corruption.

Instead of focusing on economic progress the biggest change should be to BOOT-OUT the ruling Mafia thug Sonia and her coheres out of power.  Economic progress will take speed and will see conditions improve.

Try this for a change Indians. Be Brave. Don't be a Sudra.

SatinderGarg
SatinderGarg

the speed of falling rupee is alarming. coalgate types scams, corruption money and black money is finding its way to dollar. Some  political people at state, district  and center level may be party to it. The country may head towards civil war if things are allowed to continue in this manner.



bhanupj
bhanupj

@TIME @TIMEWorld shameless scam ridden corrupt govt of all time in New Delhi#may God save this Nation

CandyMM
CandyMM

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captainjohann
captainjohann

The ruling political  class in India which is controlled by World bank /IMFreturned Economists like Man mohan singh, Montek singh Ahuluwalia, Kushakj basu, Raghu ram rajan have done this to Indian Rupee to cater to the interests of World bank and not of Indian economy.

AKhan
AKhan

@Anons if Modi will take over nd if he will come into the power from that day India will finish,,,because this is the just beginning because of him,,everywhere communal rights,,peoples are dying,,so much corruption,,and because of that the outside investors are going back from india they are taking back...

Openminded1
Openminded1

@IrmaHawks Get a life moron no will contact you for your bs and we all no you are a joke get some sleep take 200 asprin and call us in the A.m.