Published Online:July 2026
Product Name:The IUP Journal of Applied Finance
Product Type:Article
Product Code:IJAF030726
DOI:10.71329/IUPJAF/2026.32.3.52-79
Author Name:Avalagi Ashokareddy and Kirankumar Bannigol
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:52-79
This study investigates the effects of exchange rate volatility on India’s economic growth. Using quarterly time-series data from 2012-13 Q1 to 2024-25 Q4, the study applies econometric models such as ARDL to analyze both short-run and long-run relationships. GDP growth in India is taken as the dependent variable, exchange rate volatility the primary independent variable, and nominal exchange rate, inflation, interest rate, foreign direct inflow, and money supply as control variables. The findings reveal that exchange rate volatility, nominal exchange rate, interest rate, money supply (M3), and FDI have a positive and statistically significant effect on GDP growth in India. Inflation has a statistically significant negative impact on GDP growth in the long run. Crude oil price (COP) does not show statistical significance at 5% level in the long run. The short-run relationship between the variables and GDP growth is dynamic and lagdependent, with both positive and negative effects observed across different time lags. The findings provide policymakers and investors with insights on exchange rate stability and its importance for India’s economic growth.
Exchange rate dynamics have emerged as a determinant of macroeconomic stability and economic growth, particularly in emerging economies like India. With the gradual integration of the Indian economy into the global financial system following the economic reforms of 1991, the exchange rate has transitioned from a relatively controlled regime to a more marketdetermined system.