Rupee Depreciation Could Slow Down? Here's What India's CEA Nageswaran Said

Nageswaran further stressed that India’s capital markets continue to be strong, offering solid returns for direct investors, portfolio investors, and those in private equity

India's Chief Economic Advisor (CEA), Dr V. Anantha Nageswaran, has predicted that the depreciation of the rupee could slow if India continues to maintain inflation levels within the 3 to 4 per cent range. He made this statement during an event hosted by the alternative investment industry's lobby group, IVCA Conclave, according to a report by CNBC.

Nageswaran attributed the rupee's current weakness to the sustained strength of the US dollar, rather than any structural challenges in India's economy. He also pointed out that this situation contrasts with the difficulties faced by developed economies in reducing inflation below 3 per cent, as per the report.

Nageswaran further stressed that India’s capital markets continue to be strong, offering solid returns for direct investors, portfolio investors, and those in private equity (PE). Despite the challenges posed by currency volatility, he stressed that India remains an attractive market for long-term investors. "Despite volatility, India remains a rewarding market for long-term investors. Investors should stay the course—India’s journey to Viksit Bharat 2047 will be highly rewarding," he said.

What Does Rupee Depreciation Mean?

Rupee depreciation refers to the decline in the value of the Indian rupee relative to other currencies, particularly the US dollar. When the rupee depreciates, it means that one unit of the Indian currency buys fewer units of foreign currency than it did before. This can occur due to various factors, such as inflation, economic policies, global market trends, or changes in investor sentiment.

For instance, if the rupee was previously valued at 80 against the US dollar and then depreciates to 85, it means you now need 85 rupees to purchase the same goods or services that could have been bought with 80 rupees earlier. Depreciation can have both positive and negative impacts on the economy, such as making Indian exports cheaper and more attractive to foreign buyers, while also raising the cost of imports, potentially contributing to inflation.