: The good, bad and ugly of the Rupee hitting an all time low against the Dollar #IndiaNEWS #Business By Taponeel Mukherjee & Poornima Vardhan Indian National Rupee (INR) has not been in news for

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The good, bad and ugly of the Rupee hitting an all time low against the Dollar #IndiaNEWS #Business
By Taponeel Mukherjee & Poornima Vardhan
Indian National Rupee (INR) has not been in news for the right reasons so far this year. It has been dragged down by the perfect storm of international pressures and geopolitical headwinds. However, the current situation is a necessary wake-up call to regulators and policymakers to strengthen the currency by making Rupee assets more valuable to foreign investors via effective tax policies, the exporting of higher-value services, and growth-focused economic strategies.
While rising inflation, tightening monetary policy, and climbing crude oil prices have made the current fiscal a difficult one for the INR, the Russia-Ukraine war sparked a near-freefall, with the Rupee having lost nearly 7 per cent in value since Russias invasion on February 24. Meanwhile, the US Federal Reserves rate hikes (+150 bps so far in 2022) have also sparked record capital outflows of over . 6bn from the equity and debt markets between October 2021 and June 2022 (. 7bn in H12022 alone), making it the longest selling streak in Indian equity markets since liberalisation. All these factors led to the rupee hitting the 80-marktwice in July, with monetary and fiscal attempts to reverse the slide having yielded mixed results so far.
So why did we see the Rupee slide?
First, the Rupees current crisis was not unexpected.
Given rising inflation and the Relative Purchasing Power Parity Rule, post-pandemic tightening of monetary policy was always anticipated; the pace of the same has only accelerated due to inflationary pressures. This, in turn, has predictably sparked a flight of capital from emerging economies to safe Dollar-denominated assets leading to the depreciation of the Rupee.
Second, while swift currency depreciation is a cause for concern, some sectors will see strong gains.
Export-oriented sectors, such as IT, textiles, and pharmaceuticals, stand to gain from a falling Rupee. However, there are caveats, given that India is a net importing nation with a widening trade deficit that surged to more than bn in July (over 3x higher YoY). Therefore, non-export-oriented sectors, such as telecommunications, renewables, FMCG, and automotive, which heavily depend on imported raw materials, largely stand to lose. Add to this the rising global commodity prices and worsening domestic inflation, and one may conclude that the costs of INR depreciation far outweigh the benefits.
At the same time, it may also be interesting to note that while the Rupee is performing poorly vis-a-vis the U. S. Dollar, it has fared relatively well vis-a-vis other currencies YTD, including the Japanese Yen (+9. 80 per cent) and Turkish Lira (+26.

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