The downward journey that started three decades ago

Tracking the long-term movement in the rupee, there have been many periods of rupee volatility linked to chaotic economic conditions.

The rupee was valued at 4.78 per US dollar in 1966 after continued trade deficits through the 1950s resulted in a situation where neither money from abroad nor the private sector was forthcoming. The situation came to a boil when foreign aid, a key factor that prevented devaluation of the rupee, was cut off unless India acquiesced to demand to liberalise trade.

Matters were complicated by the India-Pakistan War of 1965, which prompted the US and other countries allied with India’s neighbour to withhold aid. Another hindering factor was the drought of 1965-66, which resulted in a sharp rise in prices. India was finally left with no choice but to take the politically unpopular step of devaluation alongside liberalisation.

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