Monetary Matters: What if ₹1 = $1 happens?

On social media, we frequently encounter posts that lament the rupee's "fall" from parity with the dollar, blaming governments and yearning for a seemingly lost golden era. The reality, however, is much more complex. This article aims to debunk the myth that a high-value currency automatically signifies a strong economy. If that were true, Bangladesh (where 1 Taka equals 1.18 Japanese Yen) would be stronger than Japan. Clearly, that's not how economies work.

As Dr. Raghuram Rajan, former RBI Governor, wisely said: "Currency devaluation is not a problem, but fluctuation is." Let us explore what would really happen if ₹1 equaled $1.

How Exchange Rate Works?

Exchange rates are determined by several systems:

• Fixed exchange rate: The value is pegged by the government.
• Floating exchange rate: Determined by market demand and supply.
• Managed exchange rate: Allows fluctuation within a range, with central bank intervention.

Imagine Mr. Philip in the U.S., who finds that $1 = ₹83 one day and ₹84 the next. These fluctuations reflect the changing demand and supply of currencies. India currently follows a managed float system, where the ReserveBank of India (RBI) intervenes only to limit volatility.

Devaluation of Currency

Currency devaluation means reducing the value of a currency relative to others. It increases export competitiveness but raises import costs. India’s devaluation history began post-independence, when the government borrowed heavily and couldn’t repay debts, leading to increased currency supply and reduced value. As a result, ₹1 fell from being equal to $1 in 1947 to over ₹85 today.

History of Indian Rupee and US Dollar

After independence, the rupee and the dollar were at parity. But India’s developmental needs and foreign borrowing led to systematic devaluations. In 1991, the liberalization policy accelerated India's growth despite a weak rupee. Ironically, a weaker rupee helped Indian exports flourish. Today, at ₹85.66 per dollar (as of June 9, 2025), the rupee reflects market dynamics and India’s reliance on foreign trade.

What Happens If 1 Rupee = 1 Dollar?

Let’s imagine an alternate universe where ₹1 = $1. This would imply massive appreciation of the rupee or devaluation of the dollar. But assuming this shift happens overnight:

Pros:

• Imports become extremely cheap. An iPhone priced at $999 would cost just ₹999.
• Fuel prices drop, cutting down transportation and manufacturing costs.
• Foreign travel, study, and shopping become more affordable for Indians.
• Imported luxury goods and electronics become accessible to the masses.

Cons:

• Indian exports become expensive and uncompetitive globally.
• Foreign investment vanishes, as India no longer offers cost advantages.
• MNCs in IT and BPO sectors pull out, causing large-scale unemployment.
• Domestic service jobs diminish due to high labour costs.
• A recession-like economic slowdown follows due to reduced foreign inflow.

This scenario mirrors the situation in 2007-08 when the dollar was about ₹40. The IT and BPO industries struggled then. In a $1 = ₹1 economy, outsourcing would stop, and India’s economic model would collapse.

Strong or Weak Rupee? Which is Better?

A strong rupee makes imports cheaper, lowering inflation and boosting purchasing power. However, it hurts exports and job-generating sectors like textiles, IT, and pharmaceuticals.

A weaker rupee, while increasing import costs, benefits exporters, IT services, and foreign inflow. That’s why China deliberately devalues its currency to remain globally competitive. India, as a developing nation, benefits more from a moderately weak but stable rupee. It does not matter dollar gets devalued and reach the level of rupee or whether Rupee gets a boost and attains the value of global, the result will be same.

Is India Export or Import-Oriented?

India is a net importer—especially crude oil (87% in FY24), electronics, and precious metals. But it's also a growing exporter of services (IT, pharma, textiles). With over 60% of GDP driven by services and 27% employment in these sectors, India relies on its competitive labour market.

If the rupee equals the dollar, these sectors lose their edge. MNCs shift base to cheaper markets. Employment declines. Domestic consumption dips. The economy slows down.

Global Trends and BRICS Currency

With the West in recession and “de-dollarization” gaining momentum, countries are seeking alternatives to the dollar. BRICS nations have discussed a new reserve currency, the "Unit," possibly gold-backed, to assert economic independence.

India has signed trade agreements with 18 countries to transact in INR. This increases rupee demand, strengthening its value. But reaching dollar parity still remains distant and economically unviable.

Conclusion

So, what if ₹1 = $1? It may sound aspirational, but it’s a macroeconomic illusion. In reality, such parity would destabilize India’s export-driven sectors, drive away foreign investment, and cause job losses. Currency value alone is not a badge of national strength. Instead, a stable, predictable exchange rate that supports exports and manages inflation is ideal. India should focus on sustainable growth, infrastructure, human capital, and balanced trade policies. The rupee need not equal the dollar to prove its worth—India’s strength lies in economic resilience, not just numerical parity.

The next time you see that viral post claiming "We were once equal to the dollar," remember: the value of a currency is not the value of a country.

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