Acceleration of the Indian Economy despite the fall of Rupee

Acceleration of the Indian Economy despite the fall of Rupee


Fastest quarterly growth has taken place in the Indian economy in a span of two years even when their currency, rupee continues to fall. The Gross Domestic Product had seen an expansion by 8.2% in the quarter ending on June, in comparison to a rise of 5.5% in the similar quarter last year, hence reinforcing the fact that India is one of the world’s fastest-growing economies.

This year, in the three-year period between January and March, the economy had grown by 7.7%. The economy, having a total valuation of $2.6tn, was mainly boosted by a very powerful performance not only in consumer spending but also in the manufacturing front.

Still, when we talk about the currency, Rupee, it had seen probably its worst ever month against the US dollar in the last three years. The currency had seen a fall by 3.6% in the month of August, which happened to be its most steep decline since the month of August in 2015 and also the fifth consecutive month when there has been a fall.

As far as the other currencies in emerging economies are concerned, rupee had fallen mainly due to the concerns that the US would soon be imposing additional tariffs on imports of Chinese products. Since the beginning of this year, the loss in value of rupee has been 10% as foreign investors had gone over to sell the currency off, due to concerns related to the trade deficit of India’s economy. They were also concerned about the rising prices of oil and commodity.

Despite the growth in GDP, some analysts are not sure whether the Indian economy would see further acceleration. Moody’s the credit rating agency has issued warnings related to the increasing pressure of higher oil prices as well as on the rates of interest on finances of the Government of India along with the country’s current account.

The Reserve Bank of India, through their last two meetings on Monetary Policy, has increased the Benchmark Rate by a combined margin of 50 bps, to 6.5%, so as to keep the level of inflation under check, which has stayed well above their medium-term target of 4%.