INR is depreciating largely only against USD (And of course all those pegged to USD like CNY, SGD etc). All other (floating or loose peg) major currencies it is more or less stable (i.e they are depreciating against USD at roughly same rate). Currencies such as GBP, EUR, JPY, CAD, CHF etc.
This indicates that it is really a case of USD strengthening against everyone (as to why is another detailed analysis heh, though I mention a bit later on here).
I would be worried if INR was the only one depreciating basically (as that would indicate the problem is within India) i.e that its depreciating against every major world currency. But that is not what's happening here.
That said, the major external payment types that India makes which are quite inelastic are:
a) oil/energy imports
b) loan service/repayment.
c) other inelastic goods (raw materials and inputs which India has little or no capacity to produce locally in relation to their demand)...things like OEM components for electronics etc.
d) Capital outflow
These present their own set of challenges to manage (from govt standpoint), but the good news is that GST is now working better and better (especially if you look at the warehousing numbers, IIP, PMI and various logistic indices).
Also the internal situation of the economy is looking better than before, the new bankruptcy resolution court is doing its job more and more (helping to expose the bad loans and getting them resettled so that re-capitalisation can take place) and the consumer demand is steady and increasing. This has led to finally the investment % (Gross capital formation) to increase again (as % of GDP).
Essentially the free market must be allowed to operate as much as it can (even in foreign trade/investment). The depreciation of the rupee puts more pressure on elastic imports (which can be transferred more readily to local production) and also makes Indian exports cheaper (not only goods, but services too). This will create rebound effect down the road as far as raw exchange rate with USD goes....my prediction is INR stabilises somewhere around 75 - 80 per USD and then will reclaim value later when the US stock market and economic expansion dynamics stabilise more. More rupees per dollar also tends to increase foreign investment (FDI)....and the reforms regarding this from India only continue each year....however the trends regarding capital outflow (point d) need to be looked into thoroughly (it is a trend that has started now for last cpl quarters especially). From what I have seen it seems to be mid-cap and short-cap mostly (i.e largely volatile "hot" money based) rather than equity and long-cap (cold hard money)....so it shouldn't be too much of an issue esp given Indian forex reserves are quite large and stable.
In the interim its a good opportunity for India to push and set floorboards underneath its export sector....and also push for more energy independence. Photovoltaic imports and local production helps, increase in oil storage capacity helps and also recently Indian oil companies signed for continued import of Iranian oil past the USD sanctions kicking in (likely it will be rupee - oil and then rupee used by Iran for Indian imports + currency exchanging as needed.) Let us see!
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