Ab ki baar, 80 paar: Falling Rupee to USD makes imports more expensive

Sri Sri Ravishankar had famously predicted that if Narendra Modi were voted to power, Rupee would settle at Rs. 40 to a Dollar. His, and similar predictions by another political guru, Baba Ramdev, were recalled this week when the Rupee closed at Rs 78.83 to a Dollar on Tuesday and opened at Rs 78.51 on Wednesday.

Indeed, the critics cynically coined the following slogan to describe the ‘new low’:

Ab Ki baar 80 paar

Ab Ki baar Sab barbad

BJP’s IT Cell and the party spokespersons, who had a field day before 2014 mocking the UPA for the falling Rupee, has stopped commenting on the exchange rate.

Journalists and TV anchors who blamed Manmohan Singh and the UPA Government before 2014 for the exchange rate have now discovered that international fuel prices and the war in Ukraine might have been responsible.

Not everyone is convinced by the explanation though as inflation in the US is at a level higher than in India. Yet, the value of the Rupee to a US Dollar has been falling since April.

To be fair, falling value of the Rupee vis-à-vis the US Dollar is not necessarily a catastrophe. Even economist and columnist Swaminathan Aiyar, who in 2012 felt that the falling Rupee was a kick in the pants of the Congress, now feels that “an 80-rupee dollar is not a sign of weakness”.

The falling Rupee makes our exports cheaper for other countries but makes our imports more expensive. The falling Rupee therefore would please exporters, especially in the IT and pharmaceutical sectors, chemicals and textile etc. and those who export commodities. But expensive imports would distort our balance of trade and add to inflation.

The falling Rupee would be a boon if India manufactured goods that are in demand in the rest of the world. It would then help India export a lot more. But the basket of our exports is limited and often cater to the highend like gems and jewellery and is therefore restricted. But a falling Rupee could also make India a more attractive destination for manufacturers to produce here and export to the rest of the world.

But Prime Minister Narendra Modi may well be regretting his pre-2014 rhetoric which associated the value of the Rupee with nationalism and competence of the Union Government. In strident speeches the then chief minister of Gujarat had taunted the UPA Government for the falling value of the Rupee.

‘For the past three months the value of the Rupee has been falling, and falling and falling. Other countries are taking advantage of it. But the Government is paralysed and unable to take steps to arrest the slide. They are more concerned about staying in power’, he had said in one speech. In another he had sarcastically predicted that the Rupee value would soon be the same as the then Prime Minister’s age.

Ironically, the Rupee this week closed at Rs. 78.83 to a Dollar on Tuesday and in opening trading on Wednesday plunged to Rs. 78.96 against the dollar, exceeding PM Modi’s own age of 72 years.

As the Gujarat chief minister, Modi had also associated the value of the Rupee to national pride and had declared that there was a competition between the UPA Government and the Rupee value over which one can fall faster.

When BJP won the general election in 2014, the exchange rate of the Indian Rupee stood at Rs. 58.66 to a dollar. In simpler words, 1 Dollar= Rs. 58.66. Since then, the value has slipped steadily as the following table would show.

The value of $1 in Indian Rupee:

26 May 2014 – 58.66

26 May 2015 – 63.97

26 May 2016 – 66.93

26 May 2017 – 64.51

26 May 2018 – 67.72

Even before the pandemic, the value had slid to Rs. 74.07 a dollar in October 2018.

It had stood at Rs. 73.77 to a dollar on January 12, 2022, weakened between January 12 and March 8 to hit Rs 77.13 and then started strengthening till April 5 to touch 75.23 to a dollar. Since April 5, the rupee has again seen a continuous fall. Since the beginning of the year the Rupee had depreciated by a staggering 6.28% by June 27.

(This was first published in National Herald on Sunday)