Why the Rupee Is So Weak Despite India’s Fast-Growing Economy May be paywalled
Why it matters India’s economy has grown faster than China’s, yet the rupee has weakened every year since 2018. The slide sped up after the Trump tariffs last year, and this year the oil shock from the Iran war pushed it to a series of record lows. Over the long run the causes are structural: inflation that runs higher than trading partners’, heavy dependence on imported oil, gas, fertiliser and electronics, and foreign investors pulling out. They have sold more than $30 billion of Indian stocks so far this year. The government and the RBI have used almost everything they have: selling dollars, both directly and through offshore forward contracts letting petrol prices rise and limiting gold imports a June drive that pulled in a record $143.6 billion from Indians abroad, taking reserves to nearly $800 billion in October, the first rate hike in three years, plus emergency dollar sales to state oil refiners Those October steps gave the rupee its biggest gain in six months, but Bloomberg expects the long-term decline to continue. The RBI also doesn’t want to defend the rupee too hard: Governor Malhotra calls about 3% depreciation a year “quite natural.” Why it matters A weak rupee feeds straight into the cost of imported fuel and the government’s subsidy bill. It shrinks returns for foreign investors, which hurts India’s ability to fund its current-account deficit. The first rate hike in three years means tighter money for markets just as foreign investors are leaving. For Indo-German business, imports priced in euros, including defence and satcom equipment, get more expensive. Indian exporters gain some competitiveness at a time when India is looking beyond the US market. The real swing factor is oil: if the Iran war ends, the pressure eases, but the structural weakness stays.