False national pride towards rupee value
The value of rupee vis-a-vis dollar has been an issue of false national pride (or lack of it) for a long time. Every time the rupee weakens against the dollar, it becomes an issue of national debate, albeit for all the wrong reasons. The value of the rupee does signify the economic realities of the country, but it certainly is not a cause for national pride or shame—it was not when the rupee slid past 60 levels in the middle of 2013 nor was it so when it slid past 75 levels recently.
Besides, a ‘strong’ rupee is not always good for the economy. Ask this to the RBI, which was buying the dollar last year amidst large FII inflows in Indian equity markets. The RBI’s intervention was in order to check rupee appreciation, which might, among other things, make India’s exports too expensive. A stronger rupee not only makes exports expensive, it also makes imports cheap, pitting domestic producers against cheaper imports.
Apart from this fact, there are other economic realities that people should not lose sight of while fretting about the value of rupee. Till recently, the rupee had a downward bias against the dollar because of inflation rate differentials between India and the US. Higher inflation in India compared to other countries reduces the value of the rupee. The rupee has fallen on an average over 4% every year in the past 10 years despite the country growing at over 6% during this time.
The recent fall in rupee is largely because of the geopolitical turmoil resulting in massive surge in crude oil prices. India imports 85% of its oil requirement, which means its oil import bill is likely to go through the roof even if the crude prices come down to $90-95. The rate hike by the US Fed would also lead to capital outflow, making rupee vulnerable. And while rupee may not touch the levels of 80 against dollar, it is unlikely to rise above 74 levels.
The value of currency is decided by many economic realities of the country and the world, and it does not, rightly, follow the wishes of macho nationalists, who still dream of the rupee at 40.