India's Chief Economic Advisor (CEA) Dr V. Anantha Nageswaran has forecast that the rupee's depreciation may slow down if India continues to maintain lower inflation levels, specifically within the three to four per cent range. He said this while speaking at an event organised by alternative investment industry's lobby grouping IVCA Conclave, according to a report by CNBC.
Nageswaran attributed the rupee's current weakness to the prolonged strength of the US dollar, rather than any structural issues with India’s economy. This is in contrast to the struggles faced by developed economies in bringing inflation below 3 per cent, the report said.
What does the rupee depreciation mean?
Rupee depreciation refers to the decline in the value of the Indian rupee relative to other currencies, particularly the US dollar. When the rupee depreciates, it means that one unit of the Indian currency can buy fewer units of foreign currency than before. This can happen for various reasons, including inflation, economic policies, global market trends, or shifts in investor sentiment.
For example, if the rupee was previously worth 80 against the US dollar, and it depreciates to 85, it means that you need 85 rupees to buy the same amount of goods or services that you could have bought with 80 rupees before. Depreciation can have both positive and negative effects on an economy, such as boosting exports by making Indian goods cheaper for foreign buyers, but also making imports more expensive, which can increase inflation.
Rupee appreciates by 61 paise
CEA’s comments came on the same day when the Indian rupee positively appreciated by 61 paise, reaching 86.84 against the US dollar in early trade after a period of volatility that saw it nearing 88-levels earlier in the week.
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Furthermore, the global currency markets have been highly impacted by fears of a trade war between major economies that may lead to widespread economic uncertainty at global level.
India's capital markets remain robust
Nageswaran further highlighted that India's capital markets remain robust and it is providing strong returns for direct, portfolio, and private equity (PE) investors. Despite the challenges posed by currency volatility, he emphasised that India remains a lucrative market for long-term investors.
"Despite volatility, India remains a rewarding market for long-term investors. Investors should stay the course—India’s journey to Viksit Bharat 2047 will be highly rewarding," he said.
India’s economy is consistently growing at over 6.5-7 per cent
The CEA also provided insight into the health of India’s economy. He said that India is the only large economy growing consistently at over 6.5-7 per cent. The country’s economic size has expanded dramatically from $300 billion in 1993 to $3.9 trillion in 2024, and it continues to benefit from a strong demographic advantage for the next 15-20 years.
In addition, Nageswaran discussed India’s green initiatives, noting a $2.9 billion investment in 275 impact enterprises in 2023, which is critical for advancing sustainable development goals and energy transitions.
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