Blasé Capital RUPEE’S WOES

While the Indian currency has breached the INR90 mark against the dollar, the Reserve Bank of India has stepped in aggressively to stem, and stall a free fall. Still, there are contradictory views both about the real value of the rupee, and the impact of the falling rupee. A few experts contend that the rupee, which has steadily fallen for a decade at an average rate of three per cent a year, and whose pace has accelerated, may breach the INR100 mark against the dollar in a year or two. If the global disruptions, and the pressures on the local economy increase in 2026, the central bank will be unable to stop, or even stall, a steady fall. Such analysts feel that the real value of the rupee is, in fact, INR100, and no attempt to stop it from reaching it can succeed. The central bank had artificially propped it up.

However, there are others who feel that there is no need for panic at the slide of the rupee. Brokerage Jeffries argues that the currency is now, at INR90 to a dollar, “meaningfully valued,” or has found its right and true value. Thus, its exchange rate will be stable in 2026. “We continue to believe that INR should not further depreciate, and should hold the current levels,” it maintains. The reasons include strong external fundamentals, manageable current account risks, and ample foreign exchange reserves. This is why some experts feel that although the currency breached the INR90 mark, and slid above INR91, the central bank intervention has stabilised the value around INR90. It is likely to hover around this mark for a few months, and good news like India-US bilateral trade deal, or ceasefire in Russia-Ukraine war may strengthen the rupee, rather than weaken it.

Let us turn the attention to how a weaker rupee impacts the country’s trade. Of course, it helps and boosts exports, which may partially explain the surge in exports in November 2025, although some media reports ascribe it to exporters finding new markets to stave off the negative impact of the US tariffs. But a think tank claims that “currency depreciation delivers uneven outcomes, and can even worsen the trade balance. “Currency depreciation is positive for exports of electronics, chemicals, machinery, and petroleum products. But high dependency on imports leads to increase in import cost, thereby offsetting gains, and widening the trade deficit,” states the report. A report by SBI Research adds, “Thus, while rupee depreciation enhances export competitiveness, the structural composition of imports, and short-run valuation effects limit any significant improvement in the nominal trade balance.” The export benefits, and expensive imports offset each other, and the trade deficit remains “relatively insensitive to exchange rate shocks.”

A member of the economic advisory council to the prime minister gave another spin to why he, or anyone, should not be concerned about the rupee. Sanjeev Sanyal believes that the currency fall is not linked to economic concerns or worries. Instead, it is reflective of a stronger economy, which is growing at a robust pace despite the disruptions and uncertainties. In this explanation, the rupee is weaker because the economy is stronger. The reason: In the past, nations that went through periods of high growth experienced weaknesses in their respective currencies. This happened to Japan in the 1980s and 1990s, and China in the 1990s and 2000s. Only in the recent past has China allowed the yuan to become stronger against the other currencies. There are two problems with this explanation. The first is that both Japan and China were export-led economies. Exports were crucial, weaker currencies helped, and both nations enjoyed huge trade balances, unlike India, which has a trade deficit.

Second, this explanation assumes that India is 3-4 decades behind Japan in the economic growth journey, and possibly two decades, or more behind China. Hence, despite the excitement of India soon becoming the third-largest economy in the world, there is still a long way to go to reach the progress levels witnessed in Japan and China. At present, India is on a growth curve that these two nations were 3-4 decades ago. Sanyal’s explanation assumes that economic and growth journeys of nations separated by a few decades are the same. This is obviously not the case. The growth of Japan was different from China, which was different from South Korea. The same can be said about the US and Europe. Moreover, the era of export-led, and manufacturing-led growth is over. The real game is in services, and technology. In some ways, India is ahead on the services curve, but has a lot to do, and it is low on the tech curve.

One of the sensible arguments that Sanyal makes is that the weaker rupee has not impacted inflation, and led to price rises. In general, expensive imports destabilise local prices. However, both wholesale and retail inflation are low, lower than the central bank’s targets, and prices seem manageable. Of course, in a country like India, the inflation situation changes dramatically within weeks and months. Not too long ago, prices were a matter of concern. Any minor and major disruptions in the future can cause them to rise again.