On 25th anniversary of historic devaluation, rupee gains 3rd day
New Delhi, July 1 (IANS) Signalling the current strength of the Indian currency on a day that marks the quarter century of its famous devaluation that initiated the economic reforms, the rupee gained for the third consecutive day against the US dollar.
The Indian currency traded higher by 16 paise at Rs 67.36 on Friday on the back of sustained selling of the American currency by banks and exporters. It had closed 16 paise higher on Thursday at 67.52 to the US dollar.
According to the dealers, strong foreign fund inflows and a higher opening of the domestic equity market boosted the rupee.
Meanwhile, the US dollar has been declining against most major currencies after soaring for two sessions on Britain’s vote last week to leave the European Union.
The barometer 30-scrip Sensitive Index (Sensex) of the BSE regained the 27,000-mark to close at 27,144.91 points — up 145.19 points or 0.54 per cent from its previous close at 26,999.72 points.
Continuing the upward trend evinced all this week, healthy macro-economic data and positive global cues lifted the Indian equity markets higher, while the rupee has emerged as one of the most stable currencies on the back of improved macro-economic indicators.
On July 1 1991, the Reserve Bank of India announced a sharply lowered rate for the rupee at nine per cent lower than the previous day’s levels.
Two days later, the RBI devalued the currency by another 11 per cent, while the twin devaluation marked the beginning of a complete overhaul of the economy as also of the currency markets.
An RBI document from the time says: “The initiation of economic reforms saw, among other measures, a two-step downward exchange rate adjustment by nine per cent and 11 per cent between 1 July and 3 July 1991 to counter a massive draw down in the foreign exchange reserves, to install confidence in the investors and to improve domestic competitiveness.”
The devaluation was spurred by the economy being in the middle of a full-blown balance of payments crisis, with India’s foreign exchange reserves being insufficient to pay for even a single month of imports.
“We had to tackle the exchange rate at the start because there was a lot of speculation on the rupee’s future. And if we had not acted creatively then, the whole system would have been impacted with dire consequences,” then Finance Minister Manmohan Singh said in an interview later to the Indian Express.
Twenty-five years on, India’s current foreign exchange reserves stand at a record of over $360 billion, according to the the RBI. It dipped marginally to $360.19 billion as on May 27, the Reserve Bank of India has said.
According to the foreign exchange data released by the RBI, the foreign exchange reserves stood at $360.19 billion as on May 27, as against $360.90 billion on May 20. Its current account deficit, reigning at nearly three per cent in 1990-91, dropped to 1.06 per cent in 2015-16.
India is now a $2 trillion-plus economy, which is more than six times the size it was in 1991.