Why are Indian Rupees dipping vis-a-vis USD?

 Why is it in the news? 

1.The Indian rupee slumped to 49 paise to breach the 87 mark against the US dollar on the last Monday. This downward value of rupee was on account of the meltdown of currencies of the most emerging market currencies and stock markets across Asia and Europe when President Donald Trump imposed higher tariffs on Canada, Mexico and China. He also talked about reciprocal tariffs. This led to the adverse market sentiments all over the world. 

2.It should be noted that in November 2024, the value of rupee was 84.36 rupees vis-a-vis one USD. Within a short span of three months Indian rupees further slid to 87.12 rupees per USD. 

[Source: The Hindu] 

Causes of falling of Indian Rupees vis-a-vis USD

1. Dollar index has been high over the last couple of months. The dollar is appreciating. Dollar index is pretty high against all currencies not only of emerging markets but even with the developed countries. The dollar index has picked up again and is above 109. The dollar index is a measure of the value of the US dollar relative to a basket of 6 major foreign currencies. These major currencies are Euro, Japanese Yen, British Pound, Canadian dollar, Swedish Krona and Swiss Franc. When the dollar index rises, it means the USD is strengthening against these currencies. A strong dollar makes imports cheaper for the US market but can hurt emerging markets like India and imports become more expensive. Thus, a rising dollar index often leads to rupee depreciation. The strengthening of the US dollar has been due to high interest rates which attracts global investors. Rising US treasury yields attract investors to prefer US bonds over emerging market assets, leading to the capital outflow from India. 

2.Secondly, rising prices of crude oil has increased the demand for USD, thereby putting pressure on the Indian rupee. It should be noted that India is dependent on foreign countries for 88% of its energy needs. Since, trade in crude oil and LNG (Liquified Natural Gas) is done in USD, any increase in the prices of these commodities put pressure on Indian rupees and raise the demands for more USD. 

3.Thirdly, geo-political tensions like Ukraine-Russia War, Israel-Hamas War in the Middle East, protectionist policies adopted by developed countries and slow global trade reduced the confidence of investors in the emerging markets like India. 

4.Apart from global factors, there are domestic factors which cause weakening of rupees vis-a-vis the American dollar. These are -

• Trade deficit - India imports more than exports. This leads to an increase in demand for USD and weakening of rupees. Export in merchandise trade reached USD 284.31 billion and service trade reached USD 215.98 billion between April to October 2024. While imports of merchandise goods stood at USD 486.73 billion and import of services reached USD 114.57 billion between April to October 2024 [Source : PIB]. Thus, there is a trade deficit of USD 101.01 billion in the above period. 

• High inflation in India reduces purchasing power of rupees and thus, weakens confidence of the investors. 

• Slow down in FDI and remittances further decreases the supply of USD.

• Outflow of foreign portfolios further weakens rupees and increases demand for buying USD. In 2024, foreign portfolio investors withdrew approximately $9 billion from Indian equities.  

• Fiscal deficit and government borrowings - a high deficit often leads to higher borrowings which increase inflationary trend in the economy leading to the weakening of Rupees. That’s why the government has set the target of achieving a 4.4% fiscal deficit of the GDP in the current budget of 2025-26. 

What should India do to arrest the slump of rupees ?

1. India needs to strengthen its exports by diversifying its trade agreements with emerging markets of the world. 

2. RBI should intervene whenever there is volatility in the market to arrest the fall of rupees vis-a-vis the US dollar. 

3. More emphasis should be given on foreign direct investment because it entails long term investment rather than on Foreign Portfolio Investment which is only for short term investment. 

4. Domestic institutional investments should be given more priority over FPI and FDI so that DIIs can offset the loss of money on account of outflows of FPI. 

5. There is a need to raise vocal for local so that indigenous production of goods and services gets priority over foreign goods and services. Moreover, India needs to become a manufacturing hub like China so that its dependency on imports is drastically reduced. More emphasis should be given on renewables so that rising import bills on crude oils and LNG are reduced. 

6. Fiscal deficit should be reduced so that inflationary trend in the economy is checked. This is why the current budget of 2025-26 aims at keeping the fiscal deficit at 4.4% of GDP. 

Conclusion 

India should seek alternative methods in international trading. Instead of depending upon USD, it should explore ways and means to trade in local currencies as it had done with Russia so that its dependency upon USD is further reduced. Moreover, India should strive for self-reliance in production of machinery, electronics, IT ,pharmaceuticals and renewables.

Special Features of Union Budget 2025-26

 What is the budget? 

1. Budget is a financial statement of the estimated receipts and expenditure of the government in a financial year. Under article 112 of our constitution, the government has been mandated to present an annual financial statement before the Parliament. No money can be spent without the approval of Parliament. The budget involves the process of collecting, classifying, analysing facts and figures and thereafter, pooling of allocation of different departments and ministers according to its needs. The budget is a blueprint of economic policy of the government. 

2. Budget has three major components. These are receipts, expenditures and deficit indicators. The receipts (income) have three components. These are revenue receipts, non-debt capital receipts and debt creating capital receipts. Revenue receipts are divided into tax and non-tax revenue. Tax revenue consists of direct and indirect taxes. Non-tax revenue consists of dividends and profits earned by PSUs , interest receipts on loans given to state or foreign governments or banks, grants received from foreign governments or international institutions. 

3. Non-debt capital receipts are disinvestment of public sector enterprises , recovery of loans from states, union territory, banks or financial institutions.

4.Debt creating capital receipts are borrowings of the government like government bonds, treasury bills, loans from financial institutions and external borrowings. These funds are used for capital expenditure to develop infrastructure or reduce fiscal deficit. 

Expenditures can be divided into revenue and capital expenditure. Revenue expenditure includes salaries and pensions to government employees, subsidies, interest payments on domestic and external borrowings grants to states and various welfare schemes. 

5. Capital expenditure includes expenditure on infrastructure, acquisition of assets like purchase of machinery, equipment , building , investment in public sector enterprises, loans to states and union territories, procurement of new defence equipment.

How is the Budget prepared?

1. Estimates of revenues and expenditures are formulated by different departments and ministries and presented to the Finance Ministry.  

2. The Finance Ministry consults NITI Ayog, prominent economists, industry tycoons and different stakeholders.

3. After receiving inputs, the Finance Ministry analyse available data. It prepares the draft of the budget which includes resource allocation to different departments, tax proposals, wage and means to mobilise resources to meet the expenditures in the next year. 

4. Thereafter, it is presented before the cabinet for approval. After getting the approval, the Finance Minister presents the budget in Parliament. But before presenting the budget, the Finance Minister presents an economic survey of the present year which gives details about the performance of the government. 

5. The budget is discussed and debated in Parliament. Once approved it is sent to the President for his approval. 

6. The Finance Minister introduces a finance bill and an appropriation bill for levying new taxes and for withdrawal of money from the consolidated fund of India.  

7. If the government fails to pass the budget in the Parliament, it has to resign forthwith. 

Implication of Budget on the Economy

1. Creates aggregate demand in the economy.

2. Provides income distribution among different sections of the society.

3. Leads to economic growth.

4. Gives a true picture of the fiscal health of the economy.

5. Provides social welfare.

6. Promotes direct investment.

7. Controls inflation by rationalising demand and supply.

8. Promotes exports by  giving subsidies to exporters. 

9. Establishes an amicable relationship between the central and state governments by allocating sufficient funds to state governments. 

10. Addresses unemployment inequality and regional disparity. 

11. It is a reflection of fiscal management of the government and economic reforms. 

Special Features of Budget 2025-26

1. Budget focuses on Gyan, the acronym for Garib, Youth, Annadata and Nari. 

2. It aims to stimulate economic growth by enhancing the spending power of the middle class and promoting inclusive development. 

3. Budget raises the income tax exemption threshold  to ₹12 lakh annual income. Thus, it aims at bringing disposable income for investment and so, creating demand in the economy.  

4. The budget proposes ₹11.21 lakh crore for capital expenditure which represents 3.1% of GDP and shows enhanced expenditure of ₹10.18 lakh crore in the previous year.  

5. Budget proposes to start the Dhan Dhanya Krishi Yojana whereby 100 low productivity districts would be selected to enhance agricultural productivity and farmer welfare.  

6. The short term loan limit was enhanced from 3 lakh to 5 lakh, thereby, benefitting 7.5 cr farmers. 

7. The Government will launch a 6 year mission plan to raise the production and productivity of oilseeds to reduce import dependence. Exemptions were granted for open cells used in LED, LCD TVs, capital goods for lithium ion batteries used in mobile phones and electric vehicles and looms for textiles. A ten year exemption was given on goods used for ship building.  

However, the absence of concrete measures to promote agricultural exports is one of the drawbacks of  the budget. 

8. Fiscal deficit is to be reduced to 4.4% of the GDP. However, the target can only be achieved by increasing growth in the tax revenues. Since, significant tax cuts have been announced to give relief to the middle class the government has lost ₹1 lakh cr investable income. This can be compensated only through asset monetisation plans announced in the budget because there is looming less domestic consumption and weakening external demands arising out of protectionist policies adopted by the USA and other developed countries of the world. 

9. The budget reiterates India’s ambition to emerge as a global manufacturing power house. Last year the manufacturing sector underperformed and it accounts for only 17% of GDP. The budget aims at launching the National Manufacturing Mission and improving ease of doing business. However, India cannot compete with countries like China and Germany in innovation because of the absence of concrete measures to boost industrial research and development. 

10. The budget also revised MSME classification, increasing investment limit by 2.5  times and doubling turnover threshold. Thus, investment limits have been raised in the following manner - 

• Micro enterprises from ₹1cr to ₹2.5 cr .

• Small enterprises from ₹10 cr to ₹25 cr.

• Medium enterprises from ₹50 cr to ₹125 cr. 

Similarly, turnover limits have also been revised 

• Micro enterprises from ₹5 cr to ₹10 cr 

• Small enterprises from ₹50 cr to ₹100 cr

• Medium enterprises from ₹250 cr to ₹500 cr

Thus, the revised  investment and turnover limits aim at achieving higher efficiencies of a scale, upgradation and better access to capital. 

11.  Foreign Direct Investment limit in the insurance sector has been raised from 74% to 100%, encouraging more international investment and competition. 

12. One crore Gig workers will receive identity cards and social security benefits including health coverage under the PM Jana Arogya Yojana. 

13. PM Swanidhi Scheme has been revamped to offer higher bank loans, UPI linked 30 thousand credit cards and capacity building initiatives for street vendors. 

14. An additional 10 thousand medical seats will be introduced in the upcoming fiscal year with a target of 75 thousand new seats over the next five years in order to meet the shortage of medical professionals. The budget plans to establish 200 new cancer centres by fiscal year 2026.  

To conclude - the budget focuses upon economic growth, infrastructure development, social welfare, tax reforms and MSMEs support. 

Uniform Civil Code

 Why is it in the news?

1. Uttarakhand officially implemented the uniform civil code for all residents of the state on 27th January, 2025 except scheduled tribes and natives who have migrated out of the state. Thus, Uttarakhand has become the first Indian State to implement the UCC after independence as mandated by the constitution of India under article 44. Goa already had a common civil code in India. Several BJP ruled states like Haryana, Assam, Madhya Pradesh and Gujarat have constituted committees to enforce uniform civil code in near future. 

2. The Act bans practices like Halala, Iddat and Talaq. It ensures that women are given equal rights in matters related to property and inheritance. 

3. According to the provision of UCC in Uttrakhand, all those people who have got married since March,26,2010, will have to be registered in the government portal within the six months. Marriages that have taken place after the implementation of the law should be registered within 60 days from the date of marriage. Similarly, live-in-relationship established before and after the implementation of UCC will have to be registered within one month from the date of implementation of the UCC.  

4. If the woman becomes pregnant during the live-in, then it is mandatory to inform the government within 30 days of the birth of the child. The UCC also mandates that a landlord cannot deny a house to any couple whose live-in registration is done. Thus, It mandates online registration of marriages, divorces and live-in relationships. A government portal has been formed for this purpose. People can access records, register complaints and also upload their will on the portal.  The government claims that the UCC will bring equality and harmony. It also hopes that the stream of equality emanating from Uttrakhand will irrigate the entire country in the future. 

What is Uniform Civil Code?

1. UCC refers to replacing personal laws based on religious scriptures and customs with a common set of rules governing every citizen. These laws cover marriage, adoption, inheritance, divorce and maintenance governed by respective religious scriptures. 

2.  Under article 44 of our constitution Uniform Civil Code has been put under the directive principle of state policy. The provision states that the state shall endeavour to secure a UCC for all citizens throughout the territory of India. 

3. It is suggested that UCC would lead to equality, gender justice , promote national integration, eliminate complexities of different personal laws and modernise civil laws as per the needs of the contemporary society. 

4. Detractors give the following arguments against UCC : - 

• It would infringe the religious freedom guaranteed by the constitution of India under article 25, whereby every citizen is entitled to propagate, profess and practise his own religion. 

• India has cultural diversity. Different communities have different customs and traditions. Even among tribals, the customs and traditions of North Eastern Tribes are quite different from that of tribals living in Central India. 

• Different religious communities have resisted the implementation of UCC in India, alleging that it would compromise their religious freedom. 

• Political parties except, BJP, dither to implement UCC lest they get alienated from minorities. 

Difference between Uniform Civil Code and Common Civil Code

1. UCC stands for uniform laws for all citizens irrespective of their religious affiliations. It is secular and universal. It is rigid and uniform for all communities.

Common Civil Code on the other hand does not necessarily mandate complete uniformity. 

2. It can allow for some degree of flexibility. It allows diversities while seeking harmony. Thus, it gives special consideration to customs and traditions. 

The present position of UCC in the different countries of the world.

Most of the western countries like the United States, Canada, France, Germany, Australia have UCC. Islamic countries like Turkey, Tunisia, Indonesia, Kazakhstan, Uzbekistan and other Central Asian Republics have adopted UCC. While other Muslim countries have still clung to Sharia laws.  

Historical Background 

The UCC was fairly discussed in the constituent assembly.  No unanimity among its members could be arrived at. Both Jawaharlal Nehru, Dr. Ambedkar, K M Munshi and women members were in favour of the binding implementation of UCC but the Muslim and Christian members vehemently protested against making UCC as enforceable by law.  Thus, a compromise was arrived at for want of consensus and it was put under Directive Principle of State Policy under article 44. 

Why has the uniform civil code not been implemented in India despite a constitutional mandate?

1. The fear of losing religious identity among minorities.

2. Political parties refrained from implementing UCC due to fear of backlash from minorities during the election.

3. Apprehension of social unrest by minorities.

4. Lack of consensus among majority and minority communities. 

5. Lack of awareness with regard to UCC.

6. Diversity and plurality of Indian society makes the UCC unfeasible. 

7. Encroachment upon the right to minorities under article 29 and 30 of our constitution.

The Way out 

UCC can be implemented by making consensus among all stakeholders. It requires gradual rather than drastic implementations. Moreover, citizens should be educated with regard to the benefits of the UCC. But the customs and traditions of tribal and other vulnerable communities must not be interfered with through the UCC.   

Why did Sultan Mohammad Tughlaq fail miserably as a ruler?

 1. Sultan Mohammad Tughlaq was a widely read person. He was well- versed in History, Theology, Mathematics and Persian. No Sultan before and after him was so educated as he was. But he was impatient and acted in haste. He did not give enough time to his project to be implemented efficiently, with the result that most of his experiments/projects failed. These failures sapped the vitality of the Sultanate. The final nail in the coffin of the Sultanate was struck by Taimur Lang in 1398. Taimur looted and plundered Delhi, massacred its people and took away thousands of cattle, artisans, valuable goods with him to his capital,Samarkand. 

2. The Sultan annexed the entire South India. But it could not be administered properly from Delhi for want of proper communication in those days. In 1327, he made Devgiri as his second capital to control South India. A road was built to connect Delhi with Devgiri, renamed Daulatabad. Trees were planted on either side of the road. Sarais or halting places were constructed every two miles (1 mile = 1.6 km).  Nobles, Sufi Saints and people from Delhi were exhorted to shift to Daulatabad. They were provided lands and residential places. But the experiment failed miserably. It came out that as South India could not be controlled from Delhi, so North India could not be controlled and administered from Daulatabad, a town situated 1500 km away from Delhi. Thus, the experiment was shelved in 1333, after a gap of six years. But, the experiment caused heavy casualties of people and loss of wealth. A large number of people died of exhaustion because the experiment was carried on in the summer season. Secondly, those nobles or landed gentry settled at Daulatabad got homesick. They did not like the surroundings of Daulatabad. Moreover, the locals resisted them. So, some of the nobles returned to Delhi while others perished enroute. Although the experiment failed miserably, it led to the commingling of Hindu and Islamic cultures.  Islam hitherto restricted to North India, penetrated into Deccan and South India. The exodus of muslim theologians, sufi saints, military officers, nobles and landed gentry to Deccan led to the establishment of Bahmani Kingdom in 1347. Secondly, the commingling of Persian and Hindavi gave rise to a new language called Urdu. While Hindavi provided sub structure (base), the Persian provided super structure (Persian Vocabulary) to Urdu. In later years, Urdu proliferated to North India. And it is now the lingua franca of Pakistan. While in the states of UP,Bihar, Jharkhand, West Bengal, Jammu & Kashmir, Delhi and Telangana, it is the additional official language. 

3. Introduction of token currency - The Sultan introduced token currency in the sultanate. Thus, the face value of a copper coin was put at par with a silver coin. In modern times, almost all countries have adopted token currency. But in those days it was very new for the people in the sultanate. It is suggested that the Sultan took this measure because there was paucity of silver metal. Earlier, the Chinese emperors and Kublai Khan had also experimented with token currency. But the token currency in India introduced by Mohammad Tughlaq failed miserably because the Sultanate did not take sufficient measures to check the counterfeiting of coins. The administration failed to stop the imitation of token currency. People started hoarding gold and silver and paying taxes in counterfeiting currency. This led to the decline of trade and commerce and the overall economy of the sultanate. The sultan was forced to withdraw token currency. He ordered the genuine token currency of copper to be exchanged by silver coins. This experiment further put a heavy burden upon the exchequer of the sultanate.

4. The sultan tried to curb the power and influence of Ulema who had controlled the religious and judiciary department. He ordered that the monopoly of Ulema must be dismantled and all those people who were meritorious should get access to the judiciary, religious and ecclesiastical department. This infuriated the Ulema, theologians and orthodox elements in the Sultanate and therefore, started lobbying against the Sultan. But when the sultanate witnessed a series of revolts in the second half of his reign, the sultan was forced to make compromises with the orthodox elements of the sultanate. He invited Giasuddin, a distant relative of Khalifa and bestowed upon him respect and huge gifts. Similarly, most of the Ulemas and their descendants were restored to their original positions in the judiciary, religious, educational and ecclesiastical department. 

5.Similarly, the Sultan expanded the base of nobility by recruiting not only foreign Muslims but also native Muslims. Hindus were also recruited in the nobility. Thus, instead of hereditary, the merit found utmost importance. The liberality of the Sultan was very much detested by the orthodox elements and foreign Muslims. The cohesiveness of the nobility was completely torn asunder. 

6.The Sultan embarked upon agrarian reforms in Doab. An agricultural department called Diwan-e-Kohi was established to help farmers with Taqavi loans, seeds and implements. But because of the sudden outbreak of famine in Doab, the agrarian reform failed miserably. Moreover, the land was not measured before fixing the land revenue as was done by Allauddin Khilji. The land revenue was fixed as high as half of the produce. The outcome was that most of the farmers abandoned farming and fled to the jungles. 

7. The Sultan recruited 3 lakh 70 thousand soldiers and paid them a salary of one year in advance. The purpose was to capture Khurasan in central Asia. But on account of the changing scenario in central Asia, the project was shelved. This caused a heavy economic burden on the exchequer. Similarly, the expedition to Qarajal, situated in the foothills of Himalayas, proved a disaster. Almost all 10,000 soldiers perished in the hilly terrain.

8. The Sultan failed to check on revolt one after another revolt in his vast sultanate. Thus, Bengal liberated itself from the sultanate. In South India, Harihar and Bukka established Vijay Nagar kingdom in 1336. In Deccan, Hasan Gangu, a foreign Muslim, established independent Bahamani Kingdom in 1347. In Rajputana, Hamir Dev declared independence and defeated the sultanate army at Sugoli in 1336. Thus, in the second half of his reign, the Sultan kept on quelling one revolt after another revolt and died at Thatta in 1351 while subduing the revolt in Sindh. 

9. To conclude, several historians like Elphinstone and  V A Smith accused Mohammad Tughlaq of insanity or a mixture of opposites but this is not true. Most of his experiments were ahead of his time. Moreover, they lacked the force of proper implementation. The Sultan was in haste and was hot headed. He left most of his experiments in the middle without going for a final conclusion. Moreover, he lacked a sense of proportion so much so that he could not discriminate between the serious and trivial crime and so awarded harsh punishment disproportionate to the gravity of the crime. The nobility, the Ulema, the regional warlords, the foreign Muslims were always in the lookout to undermine the position of Sultan. These were the reasons for the failure of Sultan Mohammad Tughlaq.  However, the credit goes to the Sultan that he valiantly fought against Mongols and defeated them. In spite of so many revolts, the sultanate was saved from crumbling.