The Soaring Rupee - Causes and Impact

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India is facing a peculiar problem of 'Dutch Disease'. The term refers to a situation where there are large inflows of foreign exchange due to discovery of natural resources or massive foreign investment in the country which in turn leads to appreciation of the currency, undermining the traditional export industries. The Indian rupee has appreciated by nearly 10% since late 2006 suggesting the country's attractiveness to foreign investors and optimism about the Indian economy. Apart from US dollar, the rupee has also appreciated against other currencies. During the first half of 2006, rupee has appreciated in terms of pounds, euros and yen by 8%, 6.9% and 11%, respectively.