The exchange rate between the British pound and the Indian rupee has fluctuated over time. To determine when 1 pound was equal in value to 1 rupee, we need to examine the historical exchange rates between the two currencies.
The Origin of the Rupee
The rupee is the official currency of India. It is issued by the Reserve Bank of India. The word “rupee” is derived from the Sanskrit word “rūpya”, which means “wrought silver”.
The Indian rupee was introduced in 1540 by Sher Shah Suri, founder of the Sur Empire in Northern India. He replaced the silver coinage prevalent in that time with copper and brass coins called dam. The original rupee was a silver coin weighing 178 grains.
In 1835, British India adopted a mono-metallic silver standard based on the rupee. At that time, 1 rupee was equal to 1 shilling and 6 pence (or 1s 6d) in pound sterling. This made the exchange rate between the Indian rupee and British pound equal to 15 rupees = 1 pound.
The Gold Standard Period
In 1846, the British government standardized the rupee coin at 10 grams of silver. It also proposed to make the Indian rupee equal to one shilling and four pence (or 1s 4d).
However, the proposal was rejected by the British East India Company, who wanted to retain the former s6d rating. As a result, between 1846 and 1866, the rupee-pound exchange rate was set at 10 rupees = 1 pound.
In 1866, Britain adopted a gold standard for its currency. At the same time, it proposed to make the rupee equal to exactly one shilling and four pence (1s 4d) in pound sterling. This exchange rate was equivalent to 11 rupees = 1 pound.
The rupee-pound parity at 1s 4d was finally established through the Indian Coinage Act of 1876. It came into force two years later in 1878. This exchange rate of 11 rupees = 1 pound lasted for over 30 years.
World War I and Transition to a Managed Currency
In the early 20th century, the world economy was shaken up by World War I. Britain suspended the gold standard in 1919 and started debasing the pound. As the rupee was pegged to pound, it also rapidly depreciated in value against gold.
To arrest this decline, the Indian Currency Act of 1927 established the Reserve Bank of India. The Act set up a new ‘managed’ currency exchange system, moving away from the gold standard. The RBI was given the sole right to issue currency notes in India.
It fixed the rupee-pound rate at 1 shilling 6 pence (or 13.33 rupees = 1 pound). This parity remained in place from 1927 to 1966.
Devaluation in 1966
In 1966, the Indian government carried out a major devaluation of the rupee. It was reduced from 13.33 rupees per pound to 21 rupees per pound. This was a depreciation of over 36%.
The devaluation was done due to an economic crisis and high inflation in India. It aimed to boost Indian exports by making them more competitive in terms of foreign currencies.
For a brief period from June to September 1966, the exchange rate was 1 pound = 1 rupee. However, the new rate of 21 rupees soon kicked in.
Floating Exchange Rate since 1975
In 1975, most major economies switched to a floating exchange rate system. This meant their currencies were allowed to find their value based on supply and demand in the global currency markets.
India also adopted a market-determined floating exchange rate. As a result, the rupee was no longer officially pegged to the British pound. Since then, the rupee-pound rate has fluctuated based on macroeconomic factors, trade flows, and currency speculation.
Historic Exchange Rates from 1975 Onwards
Here is a table showing some key historic exchange rates between the Indian rupee (INR) and the British pound (GBP) from 1975 onwards:
|INR per 1 GBP
As we can see, the rupee has consistently depreciated against the pound over the past 50 years. The exchange rate has gone from 16.96 rupees per pound in 1975 to 102.62 rupees per pound as of 2023.
At no point since 1975 has 1 pound been equal to 1 rupee. The closest parity was around 1980, when 1 pound was worth about 15.70 rupees. But the exchange rate has never reached complete equality after the floating exchange rate system began.
Why the Rupee Depreciated against the Pound
There are several macroeconomic factors that account for the long-term depreciation of the Indian rupee against the British pound:
- Higher inflation in India compared to Britain eroded the rupee’s purchasing power.
- Large and persistent current account deficits forced the rupee lower.
- Economic liberalization and reforms from 1991 accelerated the rupee’s depreciation.
- Large fiscal deficits and public debt weighed down the rupee.
- A surge in crude oil imports after 2000 hit the rupee due to rising payment obligations.
- Increased volatility and speculation in currency markets since 2008.
On the flip side, the British pound has benefited from lower inflation in the UK and sustained current account surpluses due to North Sea oil exports. The discovery of North Sea oil allowed the UK to become a net exporter and substantially improve its balance of payments position.
In summary, a review of historical exchange rates shows that 1 pound was equal to 1 rupee only for a brief period in 1966 after the 36% devaluation. After India adopted a floating exchange rate in 1975, the rupee consistently depreciated against the pound due to high inflation, deficits, and adverse macroeconomic factors.
The rupee has gone from being overvalued at 1 pound = 7.5 rupees (the pre-World War II rate) to being undervalued today at 1 pound = 102 rupees. It is unlikely the rupee will reach full parity with the pound again unless there is a marked improvement in India’s macroeconomic fundamentals relative to Britain.
Some economists argue the rupee is currently undervalued and could appreciate if structural reforms are implemented to control inflation and lower the current account deficit. However, any significant appreciation appears unlikely in the near future given the divergent macros between the Indian and British economies.