Rupee Depreciation & Oil Import Concerns Explained | Economy Editorial for UPSC

Summary

1. Rupee Depreciation: Since Nov 2024, rupee has fallen ~7% (₹83.4 → ~₹89.2), similar to the 2018 global-stress phase.
2. External Pressures: Strong U.S. dollar, widening CAD, higher bullion imports, and exporters facing high U.S. tariffs.
3. RBI’s Limited Role: Under a floating-but-managed regime, RBI can only smooth volatility. It sold ~$50 bn forex, yet rupee weakness persists.
4. Policy Tools Used Earlier: RBI has previously used large dollar/rupee swaps (2019; Feb 2025) to inject liquidity during global stress.
5. Macro Cushion: FX reserves remain comfortable (~$693 bn) and inflation is low (0.25%), allowing tolerance of modest depreciation.
6. Core Vulnerability: India’s heavy dependence on crude imports — now shifting from cheaper Russian oil to costlier U.S. oil — risks pushing inflation up.
7. Needed Response: Monetary policy alone cannot stabilise the rupee. India must reduce oil dependence, accelerate transport electrification, and adopt a coherent long-term trade strategy.
8. Trade Issues: Recent trade deals (Japan, UAE, ASEAN) have tilted India’s trade balance unfavourably.