Indian rupee since 1947-Mani Agarwal Dixit



    Manager – Marketing and Finance at Geon Consulting Pvt Ltd

    The journey of Indian rupee since 1947 and Forecast 2015: Dollar vs. Indian Rupee

    In 1947 i.e., when India accomplished its independence, there were no outside borrowings on the balance sheet of India thus the value of Indian rupee was at parity with the US dollar. But Indian rupee went through two phase of devaluation and in August 2013 India economy was hit to bottom-most level. As a result of which India rupee fall below 68.75 per US dollar mark which means Indian rupee had chronicled a record low of 69 times against the past 68 years since independence in 1947. In this article, we will see through the history of different factors resulted in the two time devaluation of Indian rupee since Independence, current Dollar vs. Indian rupee conversion and forecast of Dollar vs. Indian rupee conversion for 2015.

    Journey of Indian rupee since independence in 1947

    Though at the time independence i.e., on 15th August 1947 the exchange rate between Indian rupee and US Dollar was equal to one (i.e., I US Dollar = 1 Indian Rupee). As there was no outside borrowing/ loans on the balance sheet of India. But when British left India, Indian economy was in a paralyzed and begging state thus under the resilient leadership of then Prime Minister of India Pandit Jawahar Lal Nehru, the path of overall development of India was developed and formulated in the form of five year plan to address below problems:

    1. Poverty
    2. Foreign Trade
    3. Necessity of fast industrialization
    4. Increase in population
    5. Growth and improvement of natural resources
    6. Capital insufficiency and market limitations

    Thus, the first five year plan (1951 – 1956) was introduced to revitalize Indian economy and improve the standard of living of Indian people by prudent usage of natural resources and thus the overall development of Indian and its people by who suffered during British régime.

    For the rejuvenation of Indian economy and its people under the path of five year plan, from 1950 Indian government continuously borrowed foreign money in the form of outside borrowing/ loan which increased to the utmost magnitude in 1960s. Additionally, Indian government was facing budget deficit and was in a state that it could not borrow more additional loan from outside due to negative rate of savings. Thus, resulted in the devaluation of Indian rupee. Up till now 1 US Dollar is equal to 4 Indian Rupee. But this drift was worsened in 1966 by two factors: Firstly, two wars faced by India i.e., Indo-China war in 1962 and Indo-Pakistan war of 1965; and Secondly, major drought faced by India between 1965/66 which resulted in severe rise in prices and a drastic increase in inflation. Thus, it became mandatory for Indian government to devalue Indian rupee majorly for the first time in 1966 to import weapons i.e., precursor of a path of liberalization and thus opening of Indian economy for foreign trade. And, as a result of which Indian Rupee was devalued to 1 USD = 7 INR in 1966 under the leadership of then Prime Minister of India Mrs. Indira Gandhi.

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    From 1970s till 1980s, US Dollar continued to grow stronger against Indian Rupee due to many reasons. Firstly, inability of Indian politics to inject a catalyst of robust growth in the Indian economy due to incompetency in stabilizing cordial business relation with US which was coupled with robust and sturdy economic development of US. As up till now India was dependent majorly on Soviet Union for exports. Thus, when Soviet Union was divided into 15 small nations in 1991 then India’s exports were down considerably. In addition to that, India was dependent on West Asia for oil imports, South Africa for gold, US for technology and South-east Asia for vegetable oil etc. And, to buy these items global trade currency was US dollar and the only solution of earning dollars is by exporting adequate amount of good in the world market. Till 1970s, the exchange rate was 1 US Dollar = 7.47 INR which went up by 1 USD = 8.41 INR in 1975, after the political instability due to assassination of then Prime Minister Mrs. Indira Gandhi in 1984. Secondly, after the assassination of Mrs. Indira Gandhi, Rajiv Gandhi was then elected as the Prime Minister of India. But Rajiv Gandhi was failed to introduce necessary steps for the robust development of Indian economy as well as was caught to be involved in couple of scams (i.e., Bofors, IPKF misadventure, Shah Bano case etc). All this trouble resulted in sinking value of Indian Rupee which recorded a new low of 1 USD = 12.34 INR in 1985 and in the 1990 it increased to 1 USD = 17.50 INR.

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    In 1991 when P.V Narsimha rao was elected as the Prime Minister of India, Indian economy was in a state of gross negative. Therefore, he initiated the process of reforms in the form of more open Indian economy (i.e., market driven economy, allowing private sector to play major including FIIs and FDIs and reorganizing the role to be played by the government) to accelerate the trend of economic growth & development and suppress poverty. Thus, again Indian rupee was devalued in 1991 to 1 USD = 22.72 INR to eradicate the problem of fiscal deficit and balance of payment (BOP) as well as to accelerate the process of liberalization.

    Therefore, though India has encountered two major economic crisis since independence which resulted in two times devaluation of Indian rupee i.e., in 1966 and in 1991. But this trend continues and Indian rupee is losing its value due to many external and internal factors. And now in 2015 the exchange rate is 1 USD = 63.093 as on 15th March 2015 from

    Forecast 2015: Dollar vs. Indian Rupee conversion

    According to industry experts AV Rajwade, “Indian rupee has been the second strongest currency in the international market sitting right next to US Dollar. Even though the Chinese currency i.e., Yuan has devalued to some extent against US Dollar, but till the last few days, Indian rupee was lying exactly at the exchange rate when it was in during early 2014.”

    In the same manner, according to the Economic Times some other industry expert is saying that it is important to understand that the value of Indian rupee has not depreciated but in fact that the value of Dollar has appreciated due to expectations against US that US Federal might increase the interest rates. And, this would be first hike in interest rate by US fed since 2006 as in 2014 the employment rate in US recorded a 15-year high and in February 2015 the unemployment rate was 5.5% which is down from 10% recorded in 2009. Many experts says that US fed will wait until June-July of this year or early next year to announce hike in interest rate as US fed worries about flattening recovery if there is early announcement of hike in interest rates. On the other hand, RBI is well alert about the fact that the Indian economy would not be able to grow without having stable Indian rupee i.e., FIIs inflows would not stable and as per the need of India’s current development projects. Therefore, RBI is taking all the measures in aligning with the government to give momentum to the stable growth of the Indian economy.

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    The Indian economy is steadily improving with a forecast to grow at 8.5% in the next financial year which is fastest among emerging countries, said by Raghuram Rajan, RBI Governor. And, it has been predicted that RBI will further cut the benchmark rate by additional 50 points to give boost to the investor’s moral, stabilization of Indian rupee to accelerate growth and to target inflation.

    Rajan also stated that he is very positive about budget of FY 2015 -16 and said that the many medium term steps proposed by the government in the budget of FY 2015 – 16 will undoubtedly work as a catalyst in the path of India becoming center of the world’s financial activity.

    Therefore, based on above information’s about ongoing financial market trend it is predicted that the exchange rate in 2015 would be 1 USD = 62 – 63.50 INR.




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