On August 18, the Indian rupee witnessed a notable strengthening against the US dollar. As the markets opened after the Independence Day holiday on August 15, the rupee gained 20 paise and later firmed up to close at 87.36 per dollar, marking a total gain of 23 paise for the day.
The upward momentum in the rupee did not come by chance. Prime Minister Narendra Modi, in his Independence Day address from the Red Fort, announced significant reforms in the Goods and Services Tax (GST) framework. He stated that the GST system would be simplified and restructured into just two slabs, 5 percent and 18 percent. This would make essential consumer goods like small cars, refrigerators, and televisions cheaper, while also boosting demand across key sectors. The announcement immediately lifted market sentiment and contributed to the rupee’s appreciation.
Currency traders pointed out that uncertainty remains over trade tariffs between the United States and India, particularly due to President Donald Trump’s tariff policies. However, the domestic reforms and the optimism around GST overshadowed these concerns, giving strong support to the Indian currency.
The international backdrop also played a supportive role. The US dollar index, which measures the dollar’s performance against six major currencies, inched up by just 0.01 percent to 97.86, indicating that the dollar was not significantly stronger. At the same time, global crude oil prices declined by 0.06 percent to 65.81 dollars per barrel. Cheaper crude oil is beneficial for India, a major oil importer, as it reduces import costs and lowers pressure on the rupee.
The strengthening of the rupee signals resilience in the Indian economy. A stronger currency helps reduce the cost of imports, which can bring down prices of petrol and diesel, ultimately easing inflationary pressures.
Equity markets reflected this positive sentiment as well. On Monday, both the Sensex and Nifty ended higher in green territory, led by gains in auto, consumer goods, and manufacturing stocks. The reduction in GST on small cars and household goods is expected to boost sales in these sectors, adding momentum to the markets.
Experts believe that the rupee could fall below 87 per dollar if the current trend continues, which would be a strong sign of economic stability. Looking ahead, the upcoming GST Council meeting in September will be crucial. If the 28 percent slab is removed and brought under the 18 percent bracket, items like cars and televisions will become even cheaper, potentially driving further market gains and currency strength.
Overall, the twin impact of GST reform announcements and favorable global conditions has brought much-needed strength to the Indian rupee. For the middle class, this means cheaper goods, lower fuel costs, and more financial relief. For businesses, it signals easier operations and higher consumer demand.
The rupee’s latest rally underlines the growing optimism about India’s economic outlook and the positive impact of structural reforms.
