Source Live Mint
New Delhi, December 4, 2025 — The recent depreciation of the Indian Rupee (INR) against the US Dollar (USD), which saw the currency cross the psychological Rs 90-per-dollar mark, has triggered widespread concern. However, financial experts and research institutions caution against viewing the slide as a definitive indicator of a “weak national currency” or a failing economy. Instead, the current pressure on the INR is largely attributed to a complex mix of external global shocks and shifting capital flows, rather than fundamental domestic economic weakness.
Global Headwinds Over Domestic Flaws
While a falling currency is often mistakenly equated with a struggling economy, analysts point out that the primary drivers of the Rupee’s slump are rooted in the international financial landscape:
Global Strong Dollar Environment: The US Dollar has been globally strengthened by factors like the Federal Reserve’s monetary policy, which often attracts capital flows back to US assets and puts pressure on emerging market currencies, including the Rupee.
Foreign Portfolio Investor (FPI) Outflows: Overseas investors have been net sellers in the Indian equity and debt markets, pulling out significant funds. This exodus increases the demand for dollars to repatriate capital, directly weighing down the Rupee’s value.
Wider Trade Deficit: India’s merchandise trade deficit has been under strain, largely due to strong demand for imports (like crude oil and gold) coupled with a slowdown in exports. A wider deficit means India needs more dollars to pay for imports than it earns from exports, increasing dollar demand and weakening the INR.
Quote: “What is pulling down the rupee is not weakness at home, but a combination of global risk appetite, shifting capital flows and policy ambiguity—factors that can overwhelm even strong economic indicators,” noted one financial analyst.
Resilience in the Numbers
Despite the depreciation in its nominal value, key economic metrics suggest India’s foundation remains robust:
Least Volatile: An SBI Research report highlighted that while the Rupee has depreciated against the USD, it remains one of the least volatile currencies among select major economies. This suggests the movement is a gradual adjustment, not a speculative freefall.
Real Effective Exchange Rate (REER) Adjustment: For a developing economy with historically higher inflation than its trading partners, a gradual nominal depreciation is often a necessary adjustment. The fall in the Real Effective Exchange Rate (REER) makes Indian goods more competitive on the global stage, a correction that can actually support long-term export growth.
RBI’s ‘Soft-Touch’ Approach: The Reserve Bank of India (RBI) has shown an increasing tolerance for a weaker Rupee, intervening primarily to curb sharp, erratic volatility rather than defending an artificial exchange rate level. This measured approach conserves valuable foreign exchange reserves for more critical times and allows the currency to find a value that better reflects global trade dynamics.
The Silver Lining: A Boost for Exporters
For a country aiming to become a global manufacturing and export hub, a depreciated Rupee offers a significant, though partial, advantage. It makes Indian goods and services cheaper for foreign buyers in dollar terms, boosting the price competitiveness of export-oriented sectors like Information Technology (IT), Pharmaceuticals, and Textiles.
The Caveat: Imported Inflation
The most significant drawback of a weaker Rupee is the risk of imported inflation. Since India is heavily reliant on importing critical commodities, particularly crude oil, a depreciated currency makes these imports costlier. This can feed into domestic prices, raising the cost of fuel, electronics, and other imported goods, thereby impacting the average consumer.
In conclusion, the current dip in the Rupee’s value against the USD should be understood as a response to powerful, non-domestic forces and a necessary market adjustment. Far from being a sign of a weak national currency, this depreciation is part of a complex process balancing global pressures with the strategic goal of enhancing India’s export competitiveness.
