Abstract

India, the third largest economy in the world on the basis of Purchasing Power Parity (PPP) and it is growing invincibly despite challenges like large population and lack of basic facilities. Above that the rupee is under stress as the value of rupee is consistently depleting because overseas investors are demanding less of Indian rupee. The exchange rate between the Indian Rupee and the US Dollar has touched Rs. 73.43 which means for acquiring one dollar, Rs. 73.43 has to be paid. Historically, on 15th August 1947, one dollar was equal to one rupee. But over the years, the rupee has been consistently depreciated against the dollar due to dwindling macroeconomic factors. In April 2020, the rupee touched its all-time low value- Rs. 76.87 and more than 10 percent of loss of its value in recent years have been observed and it is the currency which is worst performing. The consistent decrease in the value of Indian currency may impact the Indian economy in negative ways. As further increase in depreciation increases the costs of imports. Since Indian economy is heavily dependent on imports such as oil, gems, iron, fertilizers, organic chemicals, gold & technical apparatus, this is a great cause of concern. Hence the stability in Indian Rupee is of prime importance to the Reserve Bank of India (RBI). The Indian economy is a mixed economy where the central bank regulates to stabilize the inflation rate and the exchange rate volatility. This paper reviews the probable causes for this negative performance of the rupee and policy initiatives by the regulatory authority to curb the downfall. It has also made effort to capture the scale of actions taken by the Reserve Bank Management in volatility episodes.

Keywords: Rupee Depreciation, Economic Impact, Policy Initiatives