Rupee's Value Falls to 21 Times its Worth in 1947, But Will Achieving Parity Benefit India?

Mumbai, Maharashtra: The Indian rupee has lost significant value since its peak in the 1940s and now stands at a relatively low price of Rs 85 per US dollar. This drop, marked over seven decades ago, is a staggering 21 times from its original value of just four Indian rupees to a US dollar in 1947. However, despite this significant fluctuation in exchange rates, many nationalist champions have ceased to consider the strength of the rupee against the dollar as a reflection of the nation's economic prowess.

The idea of achieving parity between the rupee and the dollar – where one rupee equals one dollar – may seem appealing on the surface. If this were to happen, goods from around the globe would become significantly cheaper for Indian buyers, with even high-end items like iPhones becoming more affordable. Similarly, an expensive US home could be purchased in India at a lower cost.

However, this scenario has several pitfalls. For every item that becomes cheaply available to Indians as a result of achieving parity, foreign goods and services will become unaffordable for them, leading to potential economic turmoil. Moreover, Indian businesses and industries relying on exports might find themselves facing huge costs due to the increased value of dollar-priced imports.

Furthermore, assuming India could maintain its economy without losing it, it's unlikely that foreign investment in shares or manufacturing facilities would increase as a result of parity between the rupee and the dollar. In fact, such investment is likely to decrease as Indian goods become more expensive relative to their global peers.

Fortunately, experts have pointed out several significant barriers to achieving such parity, which would undermine India's economic growth. Firstly, there will be an inevitable collapse in India's GDP, with all non-service sectors coming to a grinding halt due to lack of foreign exchange and no imports other than basic necessities like food or fuel. Without income from exports, international investors could lose confidence in the market.

Secondly, the significant devaluation means most imported goods become substantially more expensive for Indian buyers while being sold at high prices by foreign businesses due to low competition. Consequently, India will likely lose its competitive advantage in global trade and may require migration of workers abroad as there is no economic activity available. In such a scenario, our country would have to rely on a dwindling dollar stock held by the RBI.

There are some arguments that international goods and services would achieve only one price worldwide assuming freedom of movement for people, goods, capital etc., but in reality, we live in an environment where numerous protectionism barriers make it difficult. Therefore, achieving paring between rupee and a dollar is unlikely to be beneficial to Indians.