Days after India's Central Bank Governor warned about an impending currency war, India's rupee declined to an all-time low to 70 INR per US dollar on Tuesday. The phenomenon will most likely cause a sharp increase in India's import bill, threatening a heavy impact on the economy.
"After raising India's oil import bill by withdrawing from the Iran nuclear deal, Trump now is raising India's overall bill for all imports through his one-bullet-a-day strategy against Turkey that is hammering emerging markets and depreciating the rupee," Brahma Chellaney, a strategic thinker tweeted.
With friends like these… After raising India's oil-import bill by withdrawing from the Iran nuclear deal, Trump now is raising India's overall bill for all imports through his one-bullet-a-day strategy against Turkey that is hammering emerging markets and depreciating the rupee— Brahma Chellaney (@Chellaney) August 13, 2018
India's Economic Affairs Secretary Subhash Chander Garg has faith in the economy and has said that everything will fall into place once the external factors die down.
"Rupee is depreciating due to external factors. There is nothing at this stage to worry about," Garg said on Tuesday afternoon.
The Indian currency has fallen more than 8.6% this year, putting it in the league of worst performing currencies from emerging nations.
The real effective exchange rate is mostly a US$ story. Emerging market currencies like Indian Rupee are weak because people are fleeing to the US$ for safety as this chart suggests.For those fear mongering about the weak Rupee, do note Turkish Lira is in a virtual free fall. pic.twitter.com/5poZFcx0KZ— Rupa Subramanya (@rupasubramanya) August 13, 2018
Economists, surveyed by industry body FICCI, unanimously felt that the rupee will continue to be under pressure in 2018-19. They are of the opinion that the movement in oil prices and domestic as well as global economic developments will remain the two key swing factors for the rupee.
"While a rise in oil prices are already putting pressure on the current account, global uncertainties around trade and financial markets carry serious risks for the rupee. Trade tensions between major economies are disturbing the global economic recovery. On the domestic front, it was suggested that as India approaches state elections in late 2018 and general elections in early 2019, markets will price in a greater degree of political risk premium for the Indian rupee," FICCI's Economic Outlook Survey forecasts.
However, some industrialists view this as an opportunity to boost the country's manufacturing vis-a-vis exports which have been falling for the past few years.
"Instead of bemoaning its fall, should we view this as the ‘Make in India moment,'" Anand Mahindra, executive chairman of the Mahindra Group, tweeted on Tuesday.
Instead of bemoaning its fall,should we view this as the ‘Make in India Moment?’ With this boost to India’s export competitiveness could we now convince global companies that it’s time to switch to India for world-scale,export-focused manufacturing? @narendramodi @sureshpprabhu https://t.co/4rsIOxsCu0— anand mahindra (@anandmahindra) August 14, 2018