Movement of Rupee since 1991During the second half of 1970, there was a current account surplus. It was a period of import trading strategy and India followed a closed economy model. During the 1980s, the current account deficit began to increase, leading to a balance of payments (BOP) crisis in 1991. During the Union Budget of 1991, the Indian rupee was devalued and the Indian government opened its economy. Through this, several reforms were liberalized and the economy's exchange rate changed from a fixed rate to a floating rate. It was therefore necessary to analyze the current account as well as the evolution of the rupee from 1991. India has always faced a current account deficit, except the first years of 2000. The deficit had been financed by capital flows and most capital flows were greater than the current account deficit, resulting in a balance of payments surplus. The surplus led to an increase in foreign exchange reserves from $5.8 billion in 90-91 to $304.8 billion in 2010-11 (Table 2). In 90-91, gold accounted for around 60% of foreign exchange reserves and foreign exchange assets accounted for around 38%. This percentage increased to 1.5% and 90% respectively in 2011-2012.Figure 1: Balance of paymentsFigure 2: Foreign exchange reserveIn the table below we can see that between 1990 and 2000, the balance of payments increased posted a surplus of around 4.1 billion. dollars and it increased to around $20 billion in 2000. During the periods 2000-05 and 2005-11, we can observe a sharp decline and sudden increase in capital account surplus and deficit respectively of the current account. After 2004, the balance of payments was in decline and became a matter of concern. There was an increase in foreign exchange reserves mainly between 2005 and 2011. Table 1: Balance of payments. Looking at the movement of the Rupee in the figure below, one can clearly interpret and see that the Rupee has been depreciating since 1991. Figure 3 depicts the Movement of the Rupee against other major currencies. The best way to understand the movement of the rupee is to track the real effective exchange rate. The real effective exchange rate (REER) is formed on a basket of currencies against which a country trades and is adjusted for inflation. A rise in the index means an appreciation of the currency relative to the basket and a fall means a depreciation..