The rupee has appreciated by 10% in the last few months to a great extent due to the intrinsic competitiveness of the Indian Industry. This article examines the various reasons and economic consequences of the rupee appreciation in the Forex markets.

India is actively moving towards financial globalization and the Indian rupee is becoming an International currency. The rupee has appreciated by 10% in the last few months. In the month of April 2007 the appreciation is 3.6 %. (See Graphs 1 and 2). The growing rupee is looked at with surprise and novelty all over the world. Finance Minister P Chidambaram opined that the rupee is still competitive vis-à-vis other currencies. However, the market dealers report that it is now overvalued as much as 13-14% on the basis of the six-country trade-weighted Real Effective Exchange Rate (REER) Index. Many economists are busy providing justification for the rupee appreciation against the dollar.

The rupee growth is the result of various multidimensional factors. The various reasons and economic consequences of the rupee appreciation in the Forex markets are discussed in detail.

India is looked as a high productive country the world over. There is persistent improvement in the competitiveness of the Indian economy. India being Asia's fourth biggest economy expanded 9.2% in the fiscal year ended on March 31, 2007 as per the government forecast. All over the world expectations about the growth of the Indian economy are high. It is the consistent performance of the Indian corporate sector that is attracting the global investors to invest more in India. Stock markets are highly volatile despite the reduction in the foreign institutional investment flows which confirms the sound financial investment from domestic investors.

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