Exchange rates and the rural economy

The rupee’s relative strength vis-à-vis the dollar has eroded India’s price competitiveness, reflected in farm exports registering a 24 per cent drop during April-June over the same quarter of last year. It translates into loss of rural incomes, including through lower price realisations on account of reduced export demand and also increased vulnerability to imports.

These effects could be magnified in the coming days, following China’s move to devalue the Yuan, setting the stage for competitive currency depreciations – a path India cannot easily embark upon.