India’s Foreign Exchange Market

India began its integration with the world economy with the beginning of the 1990s. Since then, the foreign trade has grown at an average rate of 8.1% every year. During this period, capital inflows grew even faster. And increasingly, Indian businesses have found greater foreign exchange in their cash flows.

Until 1993, India maintained an administrative exchange rate. From its independence from the British to 1971, India had a fixed exchange rate against the currency of its former rulers. This was however done in consultation with the International Monetary Fund. After the collapse of the fixed exchange rate system in 1971, the currency was linked to the British pound, but not for long. As other economies gained prominence in India’s economic relations, there was a need to maintain stability vis-à-vis with other currencies too. 1975 onwards, the Indian rupee was linked to a basket of currencies and was devalued from time to time in order to maintain