The journey of India rupee since 1947 and Forecast 2015: Dollar vs.

Indian Rupee conversion

In 1947 i.e., when India accomplished its independence, there were no outside borrowings

on the balance sheet of India thus the value of Indian rupee was at parity with the US dollar.

But Indian rupee went through two phase of devaluation in August 2013 India economy

was hit to bottommost level. As a result of which India rupee fall below 68.75 per US dollar

mark which means Indian rupee had chronicled a record low of 69 times against the past

68 years since independence in 1947. In this article, we will see through the history of

different factors resulted in the two time devaluation of Indian rupee since Independence,

current Dollar vs. Indian rupee conversion and forecast of Dollar vs. Indian rupee

conversion for 2015.

Journey of Indian rupee since independence in 1947

Though at the time independence i.e., on 15th August 1947 the exchange rate between

Indian rupee and US Dollar was equal to one (i.e., I US Dollar = 1 Indian Rupee). As there

was no outside borrowing/ loans on the balance sheet of India. But when British left India,

Indian economy was in a paralyzed and begging state thus under the resilient leadership of

then Prime Minister of India Pandit Jawahar Lal Nehru, the path of overall development of

India was developed and formulated in the form of five year plan to address below

problems:

1. Poverty

2. Foreign Trade

3. Necessity of fast industrialization

4. Increase in population 5. Growth and improvement of natural resources

6. Capital insufficiency and market limitations

Thus, the first five year plan (1951 – 1956) was introduced to revitalize Indian economy

and improve the standard of living of Indian people by prudent usage of natural resources

and thus the overall development of Indian and its people by who suffered during British

régime.

For the rejuvenation of Indian economy and its people under the path of five year plan,

from 1950 Indian government continuously borrowed foreign money in the form of outside

borrowing/ loan which increased to the utmost magnitude in 1960s. Additionally, Indian

government was facing budget deficit and was in a state that it could not borrow more

additional loan from outside due to negative rate of savings. Thus, resulted in the

devaluation of Indian rupee. Up till now 1 US Dollar is equal to 4 Indian Rupee. But this drift was worsened in 1966 by two factors: Firstly, two wars faced by India i.e., Indo-China

war in 1962 and Indo-Pakistan war of 1965; and Secondly, major drought faced by India

between 1965/66 which resulted in severe rise in prices and a drastic increase in inflation.

Thus, it became mandatory for Indian government to devalue Indian rupee majorly for the

first time in 1966 to import weapons i.e., precursor of a path of liberalization and thus

opening of Indian economy for foreign trade. And, as a result of which Indian Rupee was

devalued to 1 USD = 7 INR in 1966 under the leadership of then Prime Minister of India

Mrs. Indira Gandhi.

From 1970s till 1980s, US Dollar continued to grow stronger against Indian Rupee due to

many reasons. Firstly, inability of Indian politics to inject a catalyst of robust growth in the

Indian economy due to incompetency in stabilizing cordial business relation with US which

was coupled with robust and sturdy economic development of US. As up till now India

was dependent majorly on Soviet Union for exports. Thus, when Soviet Union was divided

into 15 small nations in 1991 then India’s exports were down considerably. In addition to that, India was dependent on West Asia for oil imports, South Africa for gold, US for

technology and South-east Asia for vegetable oil etc. And, to buy these items global trade

currency was US dollar and the only solution of earning dollars is by exporting adequate

amount of good in the world market. Till 1970s, the exchange rate was 1 US Dollar = 7.47

INR which went up by 1 USD = 8.41 INR in 1975, after the political instability due to

assassination of then Prime Minister Mrs. Indira Gandhi in 1984. Secondly, after the

assassination of Mrs. Indira Gandhi, Rajiv Gandhi was then elected as the Prime Minister

of India. But Rajiv Gandhi was failed to introduce necessary steps for the robust

development of Indian economy as well as was caught to be involved in couple of scams

(i.e., Bofors, IPKF misadventure, Shah Bano case etc). All this trouble resulted in sinking

value of Indian Rupee which recorded a new low of 1 USD = 12.34 INR in 1985 and in the

1990 it increased to 1 USD = 17.50 INR.

In 1991 when P.V Narsimha rao was elected as the Prime Minister of India, Indian economy was in a state of gross negative. Therefore, he initiated the process of reforms in

the form of more open Indian economy (i.e., market driven economy, allowing private

sector to play major including FIIs and FDIs and reorganizing the role to be played by the

government) to accelerate the trend of economic growth & development and suppress

poverty. Thus, again Indian rupee was devalued in 1991 to 1 USD = 22.72 INR to eradicate

the problem of fiscal deficit and balance of payment (BOP) as well as to accelerate the

process of liberalization.

Therefore, though India has encountered two major economic crisis since independence

which resulted in two times devaluation of Indian rupee i.e., in 1966 and in 1991. But this

trend continues and Indian rupee is losing its value due to many external and internal

factors. And now in 2015 the exchange rate is 1 USD = 63.093 as on 15th March 2015

from xe.com. Below is the Table showing Historical Indian Rupee Rate (INR USD)

Historical Indian Rupee Rate (INR USD)

Year

INR/USD

Year

INR/USD

Year

INR/USD

Year

INR/USD

1947

1952

1966

1973

1974

1975

1976

1977

1978

1979

1980

1

4.75

7.10

7.66

8.03

8.41

8.97

8.77

8.20

8.16

7.89

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

8.68

9.48

10.11

11.36

12.34

12.60

12.95

13.91

16.21

17.50

22.72

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

22.72

28.14

31.39

32.43

35.52

36.36

41.33

43.12

45.00

47.23

48.62

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

46.60

45.28

44.01

45.17

41.20

43.41

48.32

45.65

46.61

53.34

58.53

61.00

Average annual currency exchange rate for the Indian Rupee (Rupees per U.S. Dollar) is

shown in this table: 1973 to present.

Source: http://www.forecast-chart.com/usd-indian-rupee.html

Forecast 2015: Dollar vs. Indian Rupee conversion

According to industry experts AV Rajwade, “Indian rupee has been the second strongest

currency in the international market sitting right next to US Dollar. Even though the

Chinese currency i.e., Yuan has devalued to some extent against US Dollar, but till the last

few days, Indian rupee was lying exactly at the exchange rate when it was in during early

2014.”

In the same manner, according to the Economic Times some other industry expert is saying

that it is important to understand that the value of Indian rupee has not depreciated but in

fact that the value of Dollar has appreciated due to expectations against US that US Federal

might increase the interest rates. And, this would be first hike in interest rate by US fed

since 2006 as in 2014 the employment rate in US recorded a 15-year high and in February

2015 the unemployment rate was 5.5% which is down from 10% recorded in 2009. Many

experts says that US fed will wait until June-July of this year or early next year to announce

hike in interest rate as US fed worries about flattening recovery if there is early

announcement of hike in interest rates. On the other hand, RBI is well alert about the fact

that the Indian economy would not be able to grow without having stable Indian rupee i.e.,

FIIs inflows would not stable and as per the need of India’s current development projects.

Therefore, RBI is taking all the measures in aligning with the government to give

momentum to the stable growth of the Indian economy.

The Indian economy is steadily improving with a forecast to grow at 8.5% in the next

financial year which is fastest among emerging countries, said by Raghuram Rajan, RBI

Governor. And, it has been predicted that RBI will further cut the benchmark rate by

additional 50 points to give boost to the investor’s moral, stabilization of Indian rupee to

accelerate growth and to target inflation.

Rajan also stated that he is very positive about budget of FY 2015 -16 and said that the

many medium term steps proposed by the government in the budget of FY 2015 – 16 will

undoubtedly work as a catalyst in the path of India becoming center of the world’s financial

activity.

Therefore, based on above information’s about ongoing financial market trend it is

predicted that the exchange rate in 2015 would 1 USD = 62 – 63.50 INR.