Free fall of rupee against dollar a cause for concern for the country

Editor,
The fall in value of the Indian rupee as compared to the US dollar is a cause of concern for the country and requires drastic steps to be taken to control further devaluation as it will adversely impact the economy of the country. The message from the Reserve Bank of India to the market is clear – It cannot always support the currency.
The latest fall of 98 paise was owing to negative cues from global and domestic equity markets because of trade-related concerns, said forex analysts who highlighted the fact that this was the biggest single day fall of the INR in over 3 months. Global risk-off sentiment has spilled into currency markets after a sharp overnight sell-off in crypto-currencies and AI-linked technology stocks. The sudden unwinding of risk trades is weighing on emerging-market currencies, including the Indian Rupee.
In the near term, factors such as risk-off flows, a firmer U.S. Dollar Index, and uncertainty surrounding the trade-deal with the US keeps the bias upward, with the pair potentially testing the 90.00 mark. Ever since the imposition of the 50% tariffs on Indian imports which came into effect in late August, the rupee has continuously struggled for three months.
Now the rupee has breached the 89-per-dollar mark for the first time and economists say the currency’s weakness is far from over and this process can continue further and we have to prepare for it. But now even if India finally seals the long-pending trade agreement with Washington which the markets have been waiting for weeks then the lift to the rupee will likely be temporary because there is need for structural changes and for it the central bank has to take the initiatives otherwise all planning will be in vain.
Right now India’s private sector activity hit a six-month low. Manufacturing PMI slipped to 59.9. Composite PMI dropped to 57.4, a nine-month low. A higher-than-expected trade deficit is adding further pressure on the rupee and these combined global and domestic cues created negative sentiment, leading to the sharp fall we saw on November 21 (Friday). A steep rupee slide usually filters into equity sentiment. and a record-weak rupee creates risk-off sentiment in the equity market as investors worry about higher imported inflation, rising corporate input costs, pressure on margins of import-dependent sectors.
The pressure tends to be more acute in midcaps and small caps, where valuations and leverage are higher. and FIIs typically turn defensive when the rupee hits new lows, as dollar-adjusted returns shrink and volatility rises. The weakness typically creates short-term caution in equities and may trigger selective FII outflows from rate-sensitive and high-valuation pockets. The currency’s slide creates clear sectoral winners and losers. Export-oriented industries stand to benefit, with stronger dollar revenues boosting rupee earnings.
On the losing side, import-heavy sectors will face immediate margin pressure. Aviation and oil marketing companies deal with higher fuel and crude costs. Electronics, consumer durables and autos with large import components also see profitability squeezed. What must be noted also is that power utilities dependent on coal imports and capital goods manufacturers may also feel the pinch, while financial institutions could face indirect inflationary stress.
Most experts agree the pain may be temporary. A possible India-US trade deal could reduce the trade deficit and help stabilise the currency. Key triggers for a recovery include softer crude prices, a cooling dollar, and steady RBI intervention to manage volatility. If these align, analysts expect the rupee to find a more stable range over the next three to four quarters.
Yours etc.,
Yash Pal Ralhan,
Via email