GDP (Data, Perspectives): On the Weakness of the Rupee

Context

In September 2025, the Indian rupee (INR) fell to an all-time low of ₹88.6 per US dollar (September 23). While currency depreciation makes imports costlier, it can also benefit exporters. The current slide in the rupee highlights deep challenges in India’s trade and investment environment.

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The Slide in the Rupee

• Against USD: INR has lost over 3% in 2025, including 1.3% in just one month.

• Global Comparison: Other major currencies (Euro, Yen, Yuan, Rand, Real) strengthened against the dollar, while INR weakened.

• Regional Context: India is closer to countries like Bangladesh and Pakistan in terms of depreciation — but the rupee’s fall is sharper.

• Broader Weakness: Rupee has also slid against the Euro and Pound, not just the USD.

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Impact of a Weaker Rupee

Negative

1. Costlier Imports

   • Crude oil, machinery, and raw materials become expensive.

   • Pushes inflation upward in India.

2. Investor Confidence

   • Currency weakness reflects concerns over GDP growth and company earnings.

   • Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) flows are falling.

Positive

1. Boost to Exports

   • Indian goods become cheaper abroad.

   • Helpful when exporters face tariffs (e.g., from the US).

2. RBI Strategy

   • The Reserve Bank of India has not intervened aggressively to defend the rupee.

   • Suggests policy preference for letting the weaker rupee aid exporters.

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Why is the Rupee Sliding?

• Trade Weakness: Exports are stagnating due to global protectionism and US tariffs.

• Low Investor Inflows: Global investors reducing exposure due to:

  • Weak GDP growth numbers.

  • Poor earnings from Indian firms.

• Demand-Supply Balance:

  • Exchange rates depend on relative demand for currencies.

  • Demand for rupees must rise (via exports or investments) to strengthen INR.

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Way Forward

1. Boost Exports: Address tariff barriers, diversify trade partners, improve logistics.

2. Attract Investment:

   • Ensure macroeconomic stability.

   • Improve ease of doing business.

   • Strengthen investor confidence through policy clarity.

3. Manage Inflation: Carefully balance weaker currency benefits with risks of imported inflation.

4. Indigenous Growth: Stronger domestic consumption and investment cycles to offset global uncertainty.

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UPSC Relevance

• GS Paper III (Economy): Currency depreciation, FPI/FDI, trade and investment flows.

• GS Paper II (IR): Impact of US tariffs and protectionism on India.

• Essay: “A weaker currency: burden or opportunity for India?”

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Practice Questions

Mains

1. Examine the impact of a weakening rupee on India’s external sector and macroeconomic stability.

2. Do you agree that a weaker rupee is beneficial for India’s exporters? Discuss with examples.

Prelims Pointers

• Current rupee low: ₹88.6 per US dollar (Sept 2025).

• Depreciation vs devaluation: Depreciation = market-driven; Devaluation = policy-driven.

• FPI = short-term investment in stocks/bonds; FDI = long-term direct investment in businesses.