Are RBI’s latest measures enough to increase rupee’s value?:Experts say steps temporarily beneficial, urge govt for structural reforms

In the recently concluded Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI), the apex bank governor, Sanjay Malhotra announced a series of measures targeted to increase inflow of foreign money in India that would in turn give much needed boost to the national currency, the rupee. After the central bank announced the measures, the local unit did climb in value. The rupee had ended 56 paise higher at 95.18 against the US dollar after the RBI’s Monetary Policy Statement. Before this, it was the most underperforming currency as compared to the other Asian units. It had weakened more than 6% this year But experts suggest that the RBI and government’s recently announced steps are beneficial only for a temporary period and that authorities should fix the root causes that would help stop the fall in the rupee’s value in the longer term. First let us see what are the reasons behind the continuous fall in rupee’s value before the RBI’s Monetary Policy Statement was out on last Friday: Why was the rupee falling? According to S Ravi, former BSE Chairman and founder of Ravi Rajan and Company, the rupee faced a double whammy of global shocks and internal challenges: Expensive Crude Oil: War in West Asia had pushed oil prices to as high as $126 per barrel. Since India imports 90% of its oil, this vastly increases the amount of dollars India has to pay out. Investors Fleeing: Researcher Devider Sharma also adds that since 2024, India has seen a continuous outflow of foreign capital to the tune of $55 billion (₹5.22 lakh crore). Even in the last one year, FPIs have sold to the tune of $20-40 billion. High Dollar Demand: Because of high oil bills and heavy gold imports, India’s demand for US dollars heavily outweighs the demand for rupees, dragging the rupee down. Researcher Devinder Sharma says the recent fall in the rupee’s value is due to the economy’s dire condition, which in turn stems from demonetisation. Demonetisation was a wrong step. It led to a strong foundation for the continuous decline of the Indian economy because of which we are seeing continuous fall in value of rupee. -Agriculture expert, Devinder Sharma Increase in imports: An increase in imports directly leads to a fall in the value of the rupee due to demand-supply dynamics. Let’s see how rising imports drag the rupee down: 1. International trade When Indian companies buy goods from global markets—like crude oil, electronics, or gold—they cannot pay in rupees. Global sellers want US dollars. 2. Currency swap To pay that foreign bill, the Indian importer must take their rupees to the bank and exchange them for dollars. 3. High demand for dollars; high supply of rupees When India’s imports rise significantly: Demand for dollars goes up: Thousands of importers rush to buy dollars. Because the dollar is in high demand, its price goes up (the dollar strengthens). Supply of rupees goes up: Importers would continuously flood the market with rupees to dump them in exchange for dollars. Because there are too many rupees available in the international market, the value of the rupee goes down. Fall in rupee leads to inflation? A weaker rupee acts like an indirect tax on ordinary citizens. Ravi explains that a falling rupee triggers imported inflation: Cost of Living: Since India imports essential items like crude oil and edible oils, a weaker rupee makes these items instantly more expensive at Indian ports. This drives up transportation and food costs for everyone. Gadgets and Cars: Daily electronics like smartphones, laptops, and cars become pricier because manufacturers have to pay more for imported microchips and parts. Foreign Expenses: Families paying for overseas education, holidays, or medical treatments face immediate strain, as they now need many more rupees to cover the same dollar costs. Will the rupee fall to 100/$ mark? According to Ravi, it is very much possible that the local unit might hit the 100 per dollar mark. In the forward markets (where people bet on future rates), the rupee has already crossed 100 against the US dollar. S. Ravi notes that whether it hits 100 in the immediate everyday market depends on how long the Middle East crisis lasts and if US interest rates remain high. Steps taken by RBI govt in the recent past: Hemant Sood, founder and MD of Findoc Investmart Pvt Ltd, argues that India should stop fighting every drop in the rupee. He points out that current economic data (REER indices) shows the rupee is actually reaching its ‘fair value’, meaning it isn’t wildly overvalued anymore. “A gradually weaker rupee is not necessarily a sign of weakness.” It can improve export competitiveness, support domestic manufacturing, and reduce the incentive to import excessively. The danger is not Rs 95 or Rs 96. The danger is pretending that Rs 85 was some sacred level.” -Hemant Sood, founder and MD of Findoc Investmart Pvt Ltd India shouldn’t waste foreign currency reserves to defend rupee’s value: Expert Sood emphasizes that India is not in a 1991-style economic crisis. Growth is strong, and India has massive foreign reserves. However, using those reserves to defend an artificial number is a waste of insurance money. Experts agree that India must move away from temporary fixes and focus on deep structural reforms. They propose following bold ideas to turn defensive liquidity into offensive economic strength: Sood says India has about $709 billion sitting in foreign reserves, mostly kept safe in low-yielding setups. Sood suggests taking 10% to 15% ($70 to $100 billion) of this money to create a state-owned investment fund. This fund would buy real, strategic global assets like overseas lithium mines (for EVs), semiconductor supply chains, and shipping hubs to secure India’s future. A long-term solution requires aggressive import substitution (making more electronics and industrial goods at home) and a rapid shift to green hydrogen and renewable energy to eliminate the oil bill entirely. Real currency stability won’t come from protecting a number on a screen; it will come from making India a powerhouse that the world wants to invest in. -S.Ravi, former BSE Chairman and founder Ravi Rajan and Company According to Sood, India has a massive, wealthy diaspora (NRIs and OCIs). India should launch 5-year bonds tailored for them to raise $25 to $50 billion. Instead of using this money for emergencies, India should channel this ‘patriotic capital’ exclusively into building mega domestic infrastructure projects like highways, ports, and railways. To stop Indian businesses from operating out of Singapore or Dubai, GIFT City in Gujarat needs aggressive policies: long tax holidays, 24-hour digital setups, and absolute clarity on rules. While, agricultural policy expert Devinder Sharma says that a boost in manufacturing and exports would help increase the value of the rupee. According to the latest Periodic Labour Force Survey (PLFS) data released by the Ministry of Statistics and Programme Implementation (MoSPI), exactly 43% of India’s workforce is employed in the agriculture and allied sectors. According to Sharma, if the income of farmers is increased, then, this will increase purchasing power of nearly half the population and hence up the demand for rupee and its value.