A Weak Indian Rupee

Currency is the basis for all transactions in today’s world. Without a proper currency, economies cannot survive. A strong currency can allow a nation to generate a larger amount of imports at a reduced cost incurred to its treasury. In contrast, a weak currency would mean shelling out huge amounts of money for small quantities of imports.

In the Indian subcontinent, the Rupee is the standard currency used for all transactions. The usage of the word rupee, as well as the coin, dates back to the Mauryan Empire. But the Indian rupee has changed a lot since then.

Evolution of the Indian Rupee

The first written mention of a currency being used in India is by a revered Sanskrit philologist Panini. His texts mention the word rupya, which is called rupee when translated to English. The first official currency to be instituted in India was by the Mauryan Emperor Chandragupta Maurya. In his time, he established a system of silver rupee coins to be used in the country. Later on, when the Mauryan empire became defunct, so did their currency.

From 1540 onwards, Sher Shah Suri established new civic law and issued a new series of silver rupees with an exact weight of 178 grains, and these coins were called rupiya which is the Hindi plural form of the word rupee. The Mughal rulers continued the system, and the minting of silver rupees with the depiction of Hindu deities became a common sight. The minting of these coins stopped after 1605. 

With the rise of the British Empire in India, the silver rupiya or silver rupee coins became the currency of the entire empire in India. The Indian rupee, throughout its history, was based on silver reserves. But the stronger economies in the world were built on gold reserves. This was the first reason the Indian rupee gained its weak status in the world market.

The Indian rupee was now an established legal tender, but the public demanded decimalisation in the rupee. The earlier decimalisation gave the value of 1 rupee as 16 annas or 64 paise. But after the amendment of the Indian Coinage Act in 1957, the value of 1 rupee was set as 100 paise. After independence, the Indian rupee was compared to the British pound and not the US Dollar.

Right after independence, 1 US dollar had the value of an approximate 3.30 Indian Rupee. But in 1949, the British pound underwent a devaluation causing the Indian rupee to go through a devaluation since it was pegged to the British pound. This put the Indian rupee to dollar rate at 4.76 rupees to one dollar. But the Indian rupee further devalued in 1966 due to the first economic crisis faced by the government.

Devaluation of Indian Rupee

Until 1966, India focused on robustly growing its economy and developing the small and medium industries that had found their roots during the fight for independence. But to do so, the government levied heavy import duty taxes to incentivize the selection of national producers over international producers. However, this put the government in a budget deficit problem. It could not borrow money from the small industries since they had negative savings, whereas they could not borrow from foreign sources.

Owing to the strict restrictions that were imposed on imported goods, the foreign aid that India was receiving was also cut off. This was done to force the Indian government to adopt a more liberalised economic policy. But the cancellation of the foreign aid meant that now there was nothing that stopped the devaluation of the Indian rupee. Therefore the rupee grew weaker and weaker by the day, eventually ending up at 3 British pence to a rupee, an all-time low.

In present times, the Indian rupee is at 75 rupees to a dollar and understandably in a very weak position. But can a weak currency be advantageous to a nation, or are there only disadvantages to a weak currency?

Advantages of a weak currency

There are three primary advantages to a weak currency. The first of which is that exports from India become cheaper. The Indian subcontinent has been exporting for ages, and a decrease in the cost of exports can fuel more demand for Indian products leading to small and medium industries growing.

Secondly, since many Indians choose to work abroad, a weak rupee is favourable to them. Since they remit money back to their families in India, they can get more rupees for a seemingly low amount of their income. Travel to India would also become cheaper, possibly promoting more tourism.

Thirdly, with a weak Indian rupee, the country’s current account deficit will also reduce, which can lead to the revaluation and appreciation of the Indian rupee.

Disadvantages of a weak currency

As with any depreciation, there are serious consequences to a weak currency. The first of which is the risk of inflation. With inflation, the price of common goods and other commodities will rise exponentially, and the weak currency will diminish the nation’s purchasing power.

Along with it, the cost of imports would also rise. Suppose an equal amount of export does not match this rise in imports. In that case, the country’s current account deficit will also increase, making it difficult for the country to sustain itself without an economic crisis. 

Lastly, the rapid degradation of a weak currency may hinder international investors from investing in the nation, making it difficult to grow and develop the currency’s appreciation again.

Conclusion

In the Indian subcontinent, the Rupee is the standard currency used for all transactions. The usage of the word rupee, as well as the coin, dates back to the Mauryan Empire. But the Indian rupee has changed a lot since then.

There are three primary advantages to a weak currency. The first of which is that exports from India become cheaper. Secondly, since many Indians choose to work abroad, a weak rupee is favourable to them. Since they remit money back to their families in India, they can get a larger amount of rupees for a seemingly low amount of their income. Thirdly, with a weak Indian rupee, the current account deficit of the country will also reduce which can lead to the revaluation and appreciation of the Indian rupee.