- Indian rupee has depreciated over 11% against the US dollar in 14 months, less than 2013 crisis levels
- Rupee weakened by more than 19% against Chinese yuan, aiding India's export competitiveness
- 2013 rupee crisis was worsened by poor domestic macroeconomics, unlike the current global-driven scenario
The Indian rupee has been among Asia's weakest-performing currencies in recent months. But despite the sustained pressure on the currency, the Reserve Bank of India (RBI) has largely refrained from deploying the kind of aggressive measures seen during the 2013 "currency crisis".
Market experts say there could be a strategic reason behind that restraint.
While the rupee has fallen more than 11 per cent against the US dollar over the last 14 months, its weakness appears even sharper when viewed against other major currencies. The picture becomes particularly significant in comparison with China.
According to ArunaGiri N, Founder, CEO and Fund Manager at TrustLine Holdings, the Chinese yuan has appreciated by nearly 5 per cent during the same period. As a result, the rupee has effectively depreciated by more than 19 per cent against the yuan.
That shift, experts say, could help India preserve export competitiveness at a time when Chinese manufacturers continue to dominate global markets through aggressive pricing.
Why This Time Looks Different From 2013
Comparisons with the 2013 rupee crisis have become common as the currency continues to weaken. However, analysts argue that the similarities end at the headline level.
In 2013, the rupee plunged from around 53-54 to nearly 68 against the dollar within a few months, a depreciation of almost 29 per cent. The current decline, while significant, is much smaller in scale.
More importantly, the economic backdrop is vastly different.
The 2013 crisis was driven not only by the US Federal Reserve's "taper tantrum" but also by serious domestic vulnerabilities. India was grappling with "policy paralysis", a widening current account deficit, fiscal stress and relatively weaker foreign exchange reserves.
Today's environment presents a different picture.
ArunaGiri N noted that the current weakness appears to be driven largely by global geopolitical uncertainties and softer foreign investor sentiment rather than deep-rooted domestic economic problems. India's current account deficit remains manageable, foreign exchange reserves are relatively strong and fiscal indicators remain stable.
Why RBI May Not Be Using The Old Playbook
During the 2013 crisis, then RBI Governor Raghuram Rajan introduced a series of extraordinary measures to stabilise the currency. These included incentivised FCNR (Foreign Currency Non-Resident) dollar deposits, special swap windows for oil marketing companies and other liquidity-support initiatives.
Those interventions helped restore confidence and arrested the rupee's decline. However, economists say replicating that strategy today may be far more expensive.
Global interest rates are significantly higher than they were a decade ago. With the US 10-year bond yield hovering around 4.5 per cent, India would likely need to offer a substantial premium to attract overseas dollar deposits.
According to ArunaGiri N, the RBI may have to provide an additional 250-300 basis points over prevailing global rates to make FCNR deposits attractive enough. Such a move would substantially increase the cost of raising dollar funds.
That cost-benefit equation may explain why policymakers have preferred calibrated intervention rather than launching a full-scale defence of the currency.
A Manufacturing Opportunity Hiding In Plain Sight
There may be another factor shaping the government's thinking.
A weaker rupee against the yuan potentially gives Indian manufacturers a competitive advantage after years of pressure from Chinese imports and oversupply.
Several sectors, including inorganic chemicals, commodities, speciality chemicals and pharmaceutical APIs, have faced intense competition from lower-priced Chinese products. Industry participants say this has squeezed margins, reduced capacity utilisation and discouraged fresh investment.
The currency adjustment could help reverse some of that trend.
A relatively weaker rupee makes Indian exports more competitive globally and may also support domestic manufacturers competing against imports. Analysts believe this could help India regain market share across several industrial segments where Chinese producers have dominated in recent years.
The Trade-Off: Inflation Versus Growth
A depreciating currency is not without risks. A weaker rupee increases the cost of imports, raising the possibility of imported inflation. Higher energy and commodity prices can eventually impact consumers and businesses alike.
Yet some economists believe the long-term gains from stronger manufacturing, exports and private-sector investment could outweigh the short-term pain.
The argument is that a revival in industrial activity can create jobs, boost investment and generate broader economic growth, reducing India's dependence on consumption-led expansion.
What Could Change RBI's Stance?
For now, policymakers appear comfortable with a strategy of patience and close monitoring. However, that approach may not last indefinitely.
A sharp escalation in geopolitical tensions, especially in the Middle East, could trigger a more disorderly fall in the rupee and force stronger intervention from the central bank.
Until then, the RBI seems inclined to avoid the dramatic measures used during the 2013 crisis.
As ArunaGiri N points out, the current phase may be less about defending every move in the currency and more about adapting to a changing global landscape-one that could ultimately create fresh opportunities for India's manufacturing and export sectors.
