Sliding Rupee and Its Impacts on India’s Economy and Exports

The Indian rupee crossed the psychologically important 90-per-dollar mark in the first week of December 2025 — its weakest level ever. In 2025 alone, the rupee has depreciated by more than 5%, making it one of the worst-performing Asian currencies this year.

But is a weaker rupee always bad? What does INR at 90+ mean for Indian exporters, importers, inflation, foreign investors, and the common man?

Here’s a complete breakdown of the causes and the multi-layered impact of the sliding rupee on India’s economy.

Why Is the Rupee Falling in 2025?

The current depreciation is driven by a perfect storm of factors:

1. Massive FPI Outflows Foreign portfolio investors have pulled out ₹1.48 lakh crore from Indian equities in 2025 (NSDL data till Nov 2025) as Indian markets underperformed global peers for 14 straight months.
2. Record Trade Deficit & Gold Import Surge October 2025 saw India’s highest-ever monthly imports of $76.1 billion, led by gold imports tripling to $14.7 billion on festive and speculative buying.
3. Delay in India–US Trade Deal Uncertainty over a bilateral trade agreement under the second Trump administration (with 50–60% tariffs already hurting key sectors) has dented export sentiment.
4. RBI’s Hands-Off Policy Unlike previous episodes, the Reserve Bank of India has largely stayed on the sidelines, allowing “orderly depreciation” to support export competitiveness instead of burning forex reserves.
5. Global Dollar Strength Expectations of “higher-for-longer” US interest rates and safe-haven flows into the dollar have pressured all emerging-market currencies.

Impact of Weaker Rupee on Different Stakeholders

1. Exporters: Big Winners (in theory)

A cheaper rupee makes Indian goods more competitive globally.

Sectors that benefit the most:

• IT & ITeS (software services)
• Pharmaceuticals
• Textiles & ready-made garments
• Auto components & engineering goods
• Chemicals & petrochemicals
• Marine products & agriculture

Example: A $100 software export invoice was worth ₹83 lakh when USDINR was 83. At 90, the same invoice fetches ₹90 lakh — an instant 8–9% revenue boost in rupee terms.

However, many exporters have imported raw materials and inputs. Rising input costs partially offset the currency gain (natural hedging).

2. Importers: Facing Margin Squeeze & Higher Costs

Companies and sectors that rely on imports are hit hard.

Worst affected:

• Crude oil & fuel importers (though global oil prices are soft, rupee depreciation still raises landed cost
• Electronics & mobile phone companies
• Gold jewellers and bullion traders
• Capital goods & machinery importers
• Airline companies (ATF and aircraft lease payments in USD)

Result → higher cost of production → either lower margins or price hikes passed on to consumers.

3. Inflation & Common Man

A weaker rupee is generally inflationary because:

• Petrol, diesel & LPG become costlier
• Imported food items (edible oils, pulses) prices rise
• Electronics, mobiles, and automobiles become more expensive

However, in late 2025, headline CPI inflation is below 1% because of soft global commodity prices and bumper harvests. The inflation impact of rupee depreciation has been muted so far, but sustained levels above 90 can change that quickly.

4. Foreign Tourists & NRIs: Big Gain

• India becomes cheaper for foreign tourists spend more
• NRI remittances and money sent home buy more rupees → higher disposable income for recipient families

5. Indian Students & Families Sending Children Abroad

Higher dollar rate means:

• Tuition fees and living expenses in the US, UK, Canada, Australia shoot up 7–10% in rupee terms
• Many middle-class families are re-thinking or postponing foreign education plans

6. Stock Market & Foreign Investors

Continued FPI selling keeps the market under pressure. A weaker currency also reduces dollar returns for foreign investors, creating a negative feedback loop.

7. Government & RBI

• Higher oil import bill → pressure on fiscal deficit
• RBI’s forex reserves dropped $12+ billion in two months
• Debt servicing cost for ECBs (external commercial borrowings) rises

Yet a moderately weaker rupee helps narrow the current account deficit in the long run by boosting exports and discouraging non-essential imports.

How Much Depreciation Is “Good” for India?

Most economists agree:

• 3–5% annual depreciation is healthy keeps exports competitive without triggering runaway inflation
• Beyond 7–8% in a year starts hurting importers and inflation expectations significantly

2025 depreciation of >5% within 11 months is on the higher side.

Rupee Outlook 2026: Will It Recover?

Analysts’ views (Dec 2025):

• If India–US mini trade deal is announced → sharp bounce possible toward 86–88
• Continued FPI outflows & high gold imports → 92–95 possible in 2026
• Base case by most banks: 88–92 trading range in 2026

Key triggers to watch:

• RBI Monetary Policy outcome (Dec 6, 2025)
• US Federal Reserve rate-cut pace
• Reversal in FPI flows (needs Indian equities to outperform)
• Gold import trend post festive/wedding season

Final Verdict: Boon or Bane?

A weaker rupee is a double-edged sword:

Short-term pain → higher import costs, inflation risk, pricier foreign education/travel Long-term gain → improved export competitiveness, higher remittance value, cheaper India for tourists

Given India’s strong GDP growth (8.2% in Q2 FY26) and low inflation, policymakers appear comfortable letting the rupee absorb external shocks rather than defending it aggressively.

For exporters and IT/pharma companies, 90+ rupee is a golden opportunity. For importers and consumers, it’s a wake-up call to hedge or cut discretionary imports.

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