Has the rupee really fallen over the years? The rupee was around 19 against the US dollar in 1991. Now,20 years later,the rupee is around 53 against the dollar. This means the Indian currency has fallen,or depreciated,by 179 per cent over the years against the dollar.
However,the rupee has not fared badly if its value against all major global currencies is taken. The real effective exchange rate (REER) or the REER Index of the rupee calculated by the Reserve Bank of India (RBI) based on a basket of 36 global currencies (36-REER) was 94.2 on March 31,2012. It was around 75.5 in 1991. This means,in real terms,the rupee has remained strong over the years. The 36-REER with 2004-05 base as 100 even rose by 4.7 per cent during the fourth quarter of 2011-12. However,for the full year it declined by 3.3 per cent after a rise of 8 per cent in 2010-11,the RBI says.
The 6- currency REER Index,which is at 105.5 has showed a rise of 4.2 per cent in the last quarter of 2011-12. It rose 13 per cent in 2010-11 but fell marginally by 2.9 per cent in last fiscal. The central bank has kept the 6-REER Index close to the 100 level to keep the exports competitive amidst huge capital flows and dollar purchases by the RBI.
The RBI takes the REER Index adjusted for relative inflation in India and her trading partners seriously while formulating its exchange rate policies. The rupees value against the dollar alone is not the deciding factor. The rupee-dollar value is not considered as the real measure of export competitiveness as India exports goods and services to several countries not just the US alone and the economic indicators,including inflation and currency value in these countries,are different.