ASSESSMENTS

What the Falling Rupee Means for India's Economy

Jul 19, 2018 | 09:00 GMT

A weakening rupee against the U.S. dollar, rising oil prices and other economic vulnerabilities point to challenges for India, and for Prime Minister Narendra Modi as he campaigns for re-election in 2019.

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Highlights

A strengthening U.S. dollar is causing the rupee to depreciate as the cost of India's hefty, dollar-denominated oil imports are rising.
The falling rupee suggests that Indian monetary policy will enter a tightening phase to stem debt outflows, manage inflation and ease the currency's fall in the world's fastest-growing economy.
With an eye on re-election in 2019, Prime Minister Narendra Modi will continue to indulge in populist spending, which will expand the country's deficit and slow the government's fiscal consolidation drive.
While economic trends in India will weaken Modi as a candidate, the absence of a unified opposition indicates that he will remain the favorite in the 2019 general elections.

With a gross domestic product of $2.6 trillion, India recently eclipsed France to become the world's sixth-largest economy. What's more, the South Asian country of nearly 1.3 billion people is home to the world's fastest-growing economy, having edged out China with its 7.7 percent growth rate from January through March. While these figures are impressive, they rest uncomfortably alongside less sanguine facets of India's macroeconomic picture....

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