Role of Macroeconomic Variables in Shaping India’s Exchange Rate

This research has been conducted to analyse the impact of macroeconomic variables of India, consisting of Balance of Payment, Gross Domestic Product, foreign reserve and foreign investment on the Exchange rate of India. To perform this study, annual data pertaining to 1993-94 to 2023-24 have been collected from the website of the Reserve Bank of India. The data has been analysed using the EViews software, and the OLS regression model has been applied to the data to draw the results. The results of the analyses provided that balance of payments and Gross domestic product exerted a significant negative impact on the exchange rate, foreign investments’ effect on the exchange rate was negative but insignificant, while the foreign reserve variable was found to be insignificant but positive. This research can provide direction to the policy makers about the relationship shared by the macroeconomic variables taken as independent and the exchange rate, and this information can be considered while formulating the policy in the context of these variables to ensure their positive impact on the Indian economy.