At the attainment of Independence in 1947, the Indian rupee, which was connected to the British Pound, was on par with the American currency. On India's record, there was no overseas borrowing. The government began to borrow externally in order to fund growth and welfare initiatives with the implementation of the Five-Year Plan in 1951. This called for the rupee to be devalued. India opted to follow a hard and fast rate currency regime after independence.
Between 1948 and 1966, USD to INR was at 4.79. In 1991, India faced an important balance of payment crisis and was forced to devalue its currency drastically.
High inflation was in the nation's grip; low growth and therefore foreign reserves were not even worth satisfying three weeks of imports. In this scenario, the currency was devalued against the US dollar at 17.90. In the past 73 years, the Indian Rupee has depreciated a little more than 74 times against the greenback. USD to INR dropped to 74.84 in July 2020 and is anticipated to decline further.
Over the past few years, this volatility has become serious, impacting major macroeconomic data, including growth, inflation, trade and investment.
In 1947, the value of 1 USD was 4.76 INR. This value persisted until 1966. But from the 1950s on, the Indian economy began to experience a downturn. This was because of the borrowing from the global market for the nation.
The situation was exacerbated by India and China's 1962 war, followed by India and Pakistan's 1965 war, and the drought that struck the country in 1966. By 1967, both of these had transformed the exchange rate from 1 dollar to INR 7.50.
Following the Oil Shock that took place in 1973 due to the decision of the OAPEC to reduce demand, the rupee value dropped to 8.10 in 1974.
India had to lend foreign currency to cope with the problem and the resulting political crisis. Throughout the 1980s, the exchange rate reached a value as high as 17.50 in 1990.
In the 1990s, India's economy was going through a crisis. The fiscal deficit decreased to 7.8% of GDP, with India on the brink of being labeled a foreign market defaulter.
A devaluation of the Indian currency was called for during this crisis. To make its export market cheaper and its import market more expensive, India took this measure.
In 1992, the devaluation transformed the exchange rate of 1 USD to 25.92 INR. Since then, the Indian currency value fell. The dollar price was 45.32 INR in 2004, and it rose to 62.33 in the next ten years. In 2016, February was the month to experience the highest rate of Dollar to INR ever, adding up to INR 68.80.
The current exchange rate of 1 USD is 72.95 INR. The depreciation of the Indian rupee has occurred by about 7.3 percent since the beginning of this year.
India also had a clear cut exchange rate regime in 1991, where the rupee was pegged to the value of a basket of major trading partners' currencies. At the beginning of 1990, India's government was in deep economic turmoil. The government was on the verge of default and its currency reserves had dried up to the extent that imports worth three weeks could hardly be financed by India.
Along with large government deficit spending and a weak balance of payments situation, high inflation was still there, comparable to 1966. The problem with the balance of payments in India started in the middle of 1985. Throughout the last half of the 1980s, though exports started to climb, interest payments and imports grew more rapidly, with India running consistent accounting deficits.
In addition, the government's deficit rose to 8.2 percent of GDP on aggregate. Due to the rise in oil prices, the Gulf War contributed to a much larger tariffs rate on imports in the situation of the 1991 devaluation. The US $9.44 billion trade deficit was incurred in 1990 and the US $9.7 billion current account deficit. Foreign currency reserves have dropped to US $1.2 billion.
Since the Gulf War had global economic consequences, just like other nations, there was no cause for India to be affected. Rather, the already precarious economic situation triggered by inflation and debt had actually further weakened it. The Indian government decreased the value of USD to INR by about 18-19% in mid 1991.
This had permitted exporters to import 30% of the value of their exports. The government agreed in March 1992 to create a dual-rate exchange regime and remove the EXIM scripting system. In March 1993, the government then unified the exchange rate and prompted the rupee to float, momentarily. India adopted the regulated floating rate of the foreign exchange regime from 1993 onwards.
The exchange rate is theoretically calculated by the economic mechanism under the current controlled floating regime, but the RBI (Reserve Bank of India) plays a major role in deciding the foreign exchange rate by choosing the target rate and buying and selling the foreign currency in order to achieve the target. The USD to INR was initially priced at 31.37, but the RBI has since allowed the Indian Rupee to depreciate against the US Dollar.
India adopted a fixed exchange rate regime prior to the time of economic liberalization in the 1990s. The INR was pegged to the US dollar and other currencies in the basket. In pegging, the value of a currency is set to another more robust and globally used currency or to a bunch of those currencies in a fixed proportion.
The fixed rate of exchange does not mean that the currency's value will not alter. This means that the value of the currency shifts in accordance with the currency or currencies to which it is pegged, i.e. that it preserves the value ratio of the currencies.
The value of currency follows the simple rule of economics - Supply and demand in the market. Supply and demand will determine whether a currency will go up or down.
Here are some of the other following factors that determine the USD to INR rate in India:
|USD Interbank Rate
|USD Buying Rate
|USD Selling Rate
|USD Remittance Rate
Exchanged so far
Banks and Money
Zero Margin Rates