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Is history repeating itself in rupee's case?
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IndiaBusinessEditorial Team, Bloomberg UTV.May 14, 2012, 11:08AM IST
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The rupee exactly witnessed the same fall of 22%, by which it was devalued in July 1991
The drop in the rupee value is bringing back comparisons with the devaluation of 1991. Is
this Deja Vu justified? Bloomberg UTV tries to find out.
The fall seen in the rupee against the dollar seems to be similar to 1991 devaluation. The
Indian currency has depreciated 22% since August 2011 from 44/dollar in Aug 2011 to
currently 53.6/dollar. And it is interesting to note that the rupee exactly witnessed the
same fall of 22%, by which it was devalued in July 1991. However, the two situations are
diametrically opposite.
Reasons for current fall
-High current account deficit, at 4% of the GDP
-Slowing foreign inflows via equity markets
-India running a large trade deficit, owing to high oil & gold import bill
Reason for devaluation in 1991
-In 1991, rupee was depreciated in 2 tranches
-India was faced with a tough foreign exchange situation
-Decision to devalue the currency put the Indian economy on growth track