Question

What do you understand by devaluation of rupee?

Answer 1

Devaluation of rupee means a deliberate downward adjustment in the official exchange rate of rupee relative to other currencies. For example, if the dollar-rupee exchange rate, which was $1=Rs50,ischangedto$ 1 = 60 under a fixed exchange rate system by the government, then in such an instance, the rupee is said to be devalued.

There were two important implications of the devaluation of rupee in 1991. First, devaluation made India's exports relatively less expensive for foreigners and increased their competitiveness and second, it made foreign products relatively more expensive for domestic consumers, discouraging imports.