Indian Rupee Crash
The Indian rupee has breached a historic psychological barrier, trading beyond ₹90 per US dollar for the first time. At the start of the year, the currency stood near ₹85. Today, it hovers around ₹90.19, marking an almost 5% decline in just eleven months. The fall has surprised many, especially after India posted strong GDP growth of over 8% in the second quarter. If the economy is expanding, why is the currency weakening? Here is a clear breakdown of the forces pushing the rupee down and what this means for consumers.
Why the Rupee Is Falling
With solid economic fundamentals, three major external factors put pressure on the Indian Rupee.
- Uncertainty Relating to India–US Trade Talks
India has been negotiating a trade agreement with the United States for years, but progress is slow.
Most large economies have already established sharp trade deals with Washington; India remains an outlier.
This ambiguity:
dampens investor sentiment.
Affects long-run capital flows.
And exerts downward pressure on the rupee.
Till a stable framework emerges, the market expects volatility in India’s external sector.
- The Withdrawal of Foreign Investors
Foreign portfolio investors have pulled out ₹1.48 lakh crore-about $16.4 billion-from Indian equities this year.
Clearly, two trends can be seen:
Some of them are booking profits by selling at higher valuations.
Others are rebalancing to markets that, at the moment, provide better returns.
When investors quit India:
They sell rupees.
convert their proceeds into dollars.
and then transfer the money overseas.
This boosts demand for the dollar and sends the rupee down.
- India’s Record Trade Deficit
Higher imports relative to exports pushed India’s trade deficit to a record $41 billion in October.
Because imports must be paid in dollars, a wider deficit forces India to buy more dollars.
More demand for dollars = weaker rupee
Lower demand for rupees = falling currency value
This has become one of the largest contributors to the rupee’s slide of late.
Why the Economy Looks Strong but the Rupee Looks Weak
Indian Rupee Crash, India’s GDP growth is driven by the domestic economy — local consumption, local production and internal investment.
The rupee, however depends more on external factors which are:
global trade flows,
foreign investor behaviour,
geopolitical tensions,
and the import bill.
So while India’s internal economic engine is strong, the currency is reacting to global pressures that sit outside domestic control.
This explains why GDP rises while the rupee falls.
What the Falling Rupee Means for Consumers
Good News for Exporters
A weaker rupee makes Indian goods cheaper abroad, potentially boosting export competitiveness.
But Consumers Face Higher Prices
India imports a great percentage of its essentials, especially crude oil.
Consequently, when the rupee weakens, imports immediately start to feel more expensive.
Example:
If crude sells for $1 a barrel :
At ₹85 → $85 per barrel
At ₹ 90 →₹ 90 per barrel
That ₹ 5 difference eventually filters down to consumers through:
fuel prices,
transportation costs,
and higher prices for everyday commodities. In other words, depreciating rupee just means higher inflation. How the Rupee Can Stabilise Short-run: RBI intervention The Reserve Bank of India could intervene by selling dollars from its reserves to slow the fall. It has already sold close to $20 billion since mid-September to defend the ₹88 mark. Once that level was breached, the RBI eased off, allowing markets to naturally adjust. Long-Term: Enhance Exports and Less Dependence on Imports In the long term, the rupee will appreciate only when global demand for Indian goods rises. To create that demand, India needs to: ramp up production. diversify exports, reduce dependence on expensive imports, and decrease the trade deficit. Unless this structural shift takes place, India might continue to see a strong domestic economy with a weak currency.
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