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Opinion National Interest PoV 50-Word Edit

ThePrint On Camera Videos In Pictures

Society & Culture Around Town Book Excerpts Vigyapanti The Dating Story

More Judiciary Education YourTurn Work With Us Campus Voice

The rupee does not need a defender. It needs an economy worth defending

RBI had expended more than $30 billion in three months in an attempt to stabilise the rupee, yet the currency still reached an unprecedented low of Rs 96.91.

The rupee reached a value of 96.91 against the dollar on 20 May, marking a 16.1 per cent depreciation over 18 months, thereby rendering it Asia’s worst-performing major currency for two consecutive years. The underlying causes of this phenomenon are now well understood.

Gita Gopinath recently explained that the rupee should be allowed to function as a shock absorber and that intervention is counterproductive. Her assertion is valid. However, the efficacy of a shock absorber is contingent upon the robustness of the vehicle in which it is installed. The more important question, one that this analysis seeks to address, is not the current state of the rupee, but rather what structural measures India must implement so that the rupee never finds itself in this situation ever again.

A close examination of the intervention data reveals that India’s foreign exchange reserves peaked at $728 billion in February this year. It now stands at $692 billion. The Reserve Bank of India (RBI) had expended more than $30 billion in three months in an attempt to stabilise the rupee, yet the currency still reached an unprecedented low of Rs 96.91. This is not a critique of the RBI; rather, it illustrates a fundamental truth: structural issues cannot be resolved through intervention alone. The $30 billion spent to slow down the depreciation did not address why the decline was happening in the first place.

The data indicate that India’s quarterly trade deficit reached its highest level, $83.2 billion, in the second quarter of the Financial Year (FY) 2024-2025, despite Brent crude averaging just $80 per barrel. In the first quarter of FY23, with oil priced at $113 per barrel, the deficit was a comparatively modest $62.6 billion. The oil-rupee conundrum has intensified even as oil prices have moderated. India’s trade deficit has structurally expanded beyond the crude oil cycle, driven by escalating imports of electronics, gold, and capital goods, which have increased at a faster rate than merchandise exports. This situation is not an external shock but rather an architectural failure.

Funding model that must change

Before........

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