# Ajayan | The rupee’s sharp and unprecedented slide past the 90-mark against the dollar is a matter of serious alarm, for its shockwaves could jolt the Indian economy on multiple fronts. The timing is equally striking: the fall coincides with the Union Government’s celebration of an impressive 8.2 per cent GDP growth in the second quarter of the fiscal year.
Yet this growth figure is already under debate. Questions over its credibility and sustainability persist, especially in the backdrop of recent GST rate cuts, income tax relaxations, pre-election cash transfers and a raft of incentives. Whether this growth can endure is an entirely different, and far more crucial, question.
What unsettles the ordinary citizen is this: even as the Government repeatedly asserts the “strong fundamentals” of the economy, the rupee continues to weaken by the day; an erosion that will hurt a vast majority of people.
It is not just anxious parents funding their children’s education abroad. In theory, exporters might welcome a weaker rupee, but they account for only about 12 per cent of India’s GDP. The remaining 88 per cent, the overwhelming majority, has every reason to worry. A sliver of relief may come from Non-Resident Indians, whose remittances will now fetch more in rupee terms; welcome news, especially for Kerala. But their contribution, too, is nowhere near enough to soften the blow of a steadily falling rupee.
Incidentally, it is worth remembering that the rupee stood just above 60 to a dollar when the Modi Government first came to power; now, for the first time, it has slipped past the Rs 90-mark. In an atmosphere clouded by global trade-war tensions, surging demand for dollars, and weakening external flows, the outlook is anything but reassuring. The Government may point to impressive GDP figures, but those numbers are not mirrored in the real economy, which now appears more fragile and exposed than ever.
The most immediate fallout of a weakening rupee is its impact on India’s crude oil bill and the cost of essential goods imported from abroad. For now, fuel prices appear contained, but only because the burden is being absorbed through a maze of levies and cess. Should petrol and diesel prices rise again, the ripple effect will be swift and severe: transportation costs will soar, and the prices of everyday necessities will climb sharply. Higher import bills will only intensify domestic price pressures. The warning signs are already here: vegetable prices have begun their steady climb, and at this pace, the outlook is poised to worsen long before there is any sign of relief.
All of this will inevitably push retail inflation higher. And if inflation surges, as it very likely will, the triumphant narrative of GDP growth will quickly lose its sheen. The Reserve Bank of India has claimed to be monitoring the rupee’s slide and has already intervened by selling dollars, but it may soon be forced to abandon its easy-money stance. A tightening cycle would drag the economy back to square one, undoing the very momentum the Government is eager to showcase.
When we look closely at the causes of this sudden dip, the picture becomes clearer: a wave of negative signals from both global and domestic equity markets, driven largely by trade tensions, has rattled investor confidence. High US tariffs and the lack of a trade deal, soaring demand for the dollar and weakening external capital flows have all pushed the rupee downward. Allowing this slide to continue unchecked could carry a dangerous consequence, a slowdown in foreign investment, precisely when the economy needs steady inflows to stay afloat.
“I’m not losing sleep over it,” was Chief Economic Adviser V Anantha Nageswaran’s response to the rupee’s fall. Yet, the RBI is unlikely to allow the currency to drift far beyond its comfort range. The bank appears to be intervening mainly to tame volatility and discourage speculative positions rather than defend any fixed exchange rate. But the luxury of a hands-off approach is running out. The rupee cannot be left to slide unchecked, and the RBI will have to step in more decisively. The sooner it acts, the better.