An interesting—and equally misleading—claim that has been circulating on social media in recent days is that Afghanistan’s economy appears “better” than India’s when the Indian Rupee is compared to the Afghan Afghani. The basis given is that while 1 US dollar is equivalent to approximately ₹90, it is approximately ₹65 Afghani. Based on this logic, some self-proclaimed economic analysts conclude that whose currency appears “strong”, its economy is also equally strong.
If this is the standard, then looking at 1 USD = 156 Japanese Yen, should we assume that Afghanistan has become more prosperous than Japan?
Of course not.
As attractive as this argument is in its superficial simplicity, it is as far from reality as it is.
Scale and need of Indian economy
India is a country of approximately 150 crore people—a huge consumer market, requiring extensive imports to meet demand. From energy to capital goods, India is dependent on foreign goods at many levels. Naturally, when the flow of dollars goes out of the country, there is some pressure on the currency. This pressure is not a sign of any economic crisis, but a normal result of the global trade system.
In economics, the value of currency is neither a complete measure of the prosperity of a country, nor an indicator of national development. What is more important is to see how the economy is ensuring production, employment, investment and stability.
Controlled Devaluation of Rupee: Objective and Strategy
Many countries—China, South Korea, and Japan are prime examples—allow their currencies to remain depreciated in a controlled manner during their development phase. This makes their exports more competitive and increases the demand for their services and labor in the global market.
India also works on the same principle.
The Reserve Bank of India doesn’t let the currency “fall”, it manages it—that’s the difference. Controlled devaluation provides significant benefits to Indian IT, services sector and manufacturing and makes India more attractive for global investment.
Some basic comparisons that are often missed
Country GDP India $4.1 trillion Afghanistan ~$14 billion
Measuring the strength of an economy just by looking at currency exchange rates is like measuring a person’s wealth just by the number of papers in his wallet.
The value of a currency is influenced by many factors—fiscal policy, trade balance, political stability, production capacity, import-export cycles, geopolitical risks, and market confidence.
Comparing a huge economy like India with just a two-digit exchange rate is not only a mistake but also ignores the basic principles of economic analysis.
In conclusion: understanding, not data, matters
The world’s third-largest economy—Japan—appears “weaker” than many smaller countries when measured by the value of its currency. This itself is the clearest evidence of the weakness of this claim.
Therefore, whenever someone claims to assess the economic potential of a nation just by looking at the exchange rate, it should be remembered that the economy is evaluated by its production, stability, employment potential and global confidence, and not by the numbers written on its currency notes.
A little financial understanding can save a lot of misunderstandings.
