But even before market affected the decline of rupee, the RBI has also deliberately devalued rupee in the past. In 1947 the exchange rate was 1 USD to 1 INR. The Indian rupee was devalued for the first time in 1949 and the rupee fell to 4.79 against a dollar. Then in the decade of 1960 and 70s came as a period where the currency witnessed a lot of economic challenges and food crisis and high inflation which led to a devaluation of rupee.

The crisis was further escalated by the 1962 Indo-China and India-Pakistan war in 1965. During that period, the Indian economy was faced with high import bills and all this impacted the currency negatively due to which the government was forced to devalue the currency to from Rs. 4.76 to 7.57 against the dollar in 1966.

Finally, the Indian rupee was devalued in 1991. In 1991, India faced a serious crisis when the country was in the grip of high inflation, low growth and and the foreign reserves were not even worth enough to meet three weeks of imports. Hence the government was forced to sharply devalue its currency to Rs. 24.5 against a dollar.  Therefore the devaluation of Indian Rupee taken place 3 times since 1947. As the country marks 78 years of independence, the rupee has gone down by nearly 20 times.

Let’s start with the basics. Imagine you’re importing a product from USA for 1 dollars. The dollar was coming for rupee 83 a month ago and now you need to buy the same dollar for rupee 84, it means that the price to import a product increases when the rupee depreciates. Therefore For the consumers, a weaker rupee translates into higher costs for imported goods, such as fuel and electronics, potentially raising inflation. The petrol and diesel becomes costlier.

Now the Businesses with a debt in foreign currency also have to pay more amount in rupees for the same amount of loans. For example now rupees 84 will be paid for same 1 dollar loan for which earlier rupess 83 was being paid. For the Investors, the rupee depreciation can hurt market sentiments and the returns on the investments may be lower. However, it’s not always bad when the rupee falls.

Exporters often benefit from a weaker rupee, as their goods become cheaper and more competitive globally. Suppose an exporter exported a product for 1 dollar. Earlier he was getting rupees 83 and now he will be getting rupees 84 for the same product. Therefore, the rupee devaluation promotes exports. But since for India import bill is more than the export bill, therefore for India the fall of rupees leads to trade deficit and decline in the forex reserves.

RBI is the authority to manage the rupee stability and it is selling US Dollars in the forex market to increase dollars supply and cut rupee depreciation.

Watch related video Click for PART 1  and PART 2