The reason for India’s dollar drought – most visible in the weakening value of the rupee – does not lie in the events of the past few months. This has been going on for about three years, and has now been pushed to crisis point due to the Iran conflict and changes in US trade policies.
For decades, the value of the rupee (called the exchange rate) was a simple tug of war between the products we imported (oil/gold) and the products we exported. This is called trade balance. But, in India’s case, it meant ‘trade deficit’ as we imported more than we exported. However, since the 1990s, and especially in the last two decades, the mathematics has become more complex.