Devaluation of Indian Rupee against Dollar

You might have seen news headlines “Indian rupee falling” or “Rupee falls to Rs.65 against US dollar”. Have you ever wondered why rupee is falling? Who fixes the value of India rupee?

Let’s us discuss in this post a brief history of Indian rupee against dollar from 1947 and also its main causes and effects.

What is Devaluation?

it refers to decline in the value of a currency with respect to other countries, which is most of the times brought by central bank. It should not be confused with term depreciation of currency which is decline in currency value due to market forces without interference of government. Devaluation means officially lowering the value of currency in terms of foreign currencies. There could be many motives of the devaluation. It stimulates exports of commodities. It restricts import demand for goods and services. It helps in creating a favourable balance of payments. Almost all the countries of the world have valued their currencies at one time or the other with a view to achieving certain economic objectives. During the great depression of 1930 devaluation was carried by most countries of the world for the correcting their over-valuation.

History about Indian rupee and its Exchange rate:

YEAR	RUPEE VALUE	US DOLLAR
1947	1.00	1
1966	7.50	1
1975	8.40	1
1984	12.36	1
1990	17.50	1
1991	24.58	1
1992	28.97	1
1995	34.96	1
2000	46.78	1
2001	47.93	1
2002	48.98	1
2003	45.57	1
2004	43.84	1
2005	46.11	1
2007	44.25	1
2008	49.82	1
2009	46.29	1
2010	45.09	1
2011	51.10	1
2012	54.47	1
2015	63.76	1
2016	67.89	1
14/08/2017	64.06	1

In past 70 years ,two years were regarded as very important years in Indian rupee history. These are 1966 and 1991 in which government has to taken decisions to devalue the Indian rupee voluntarily. What are the main causes behind it? Why government had to take such harsh decisions.

The 1966 Devaluation

The 1966 devaluation was the result of the first major financial crisis the government faced.Since 1950,India ran continued trade deficits that increased in magnitude in the furthermore,the government of India had a budget deficit problem and could not borrow money from abroad or from the private corporate sector,due to that sector’s negative savings rate.

Two additional factors played a role in the 1966 devaluation. The first was India's war with china in 1962 which we lost and the war with Pakistan in late 1965s. The US and other countries friendly to Pakistan withdrew financial aids to India,which further necessitated devaluation. And the second major factor was the drought faced by India in 1965/1966,which increased the prices. Thus plays a significant role in devaluation of Indian currency.

The 1991 Devaluation

In July of 1991 the Indian government devalued the rupee by between 18 and 19 percent.There were many political and economic conditions. There was political instability a before 1991 thus causes major impact on economic conditions of the country like the emergency faced by the country in 1975 ,assassination of Prime Minister Indira Gandhi in 1984 after that assassination of Prime Minister Rajiv Gandhi in 1991.

Also in 1991,India had economic crisis.the government had a balance of payment problem and was in the verge of defaulting. The rupee was further devalued to Rs.25 per dollar as part of the measure to overcome the crisis.