Rupee fall past 90 exposes cracks in India’s economic outlook

Chief Economic Advisor Anantha V Nageswaran may dismiss the rupee breaching the psychological barrier of 90 against the US dollar, and closing at 90.19 on Wednesday (December 3), without losing his sleep, but this fall is a symptom of a larger and persisting problem: weakening of the economic fundamentals.

This is clear from the fact that the fall in the value of the rupee vis-à-vis the USD is not an occasional blip but a continuing trend. The same is the case vis-à-vis two other major currencies, the euro and Great British pound, or GBP.

(On Thursday, the rupee rose 19 paise to close at 89.96 against the USD.)

The following graph maps the rise of these currencies against the rupee since 2014.

What Nageswaran said needs a re-read to find out what is revealing and what he is hiding.

He said, “It will come back next year. Right now, it’s not hurting our exports or inflation. I am not losing my sleep over it. If it has to depreciate, now probably is the right time.”

Factors leading to fall

The immediate breach into the psychological barrier may have been because of factors like hedging in the capital market, rising demand for USD from importers, and foreign portfolio investors (FPIs) continuing to flee. While markets have their own logic (in which sentiments often play a big role), the pressure from importers is understandable.

Also Read: Rupee slumps to all-time low of 90.25 against US dollar

But it shouldn’t be forgotten that India is a net importing country, and imports should figure more prominently when the rupee value or forex is considered, given that the trade deficit is rising.

For example, the trade deficit rose to $78.14 billion during April-October 2025, against $69.92 billion in the corresponding previous year period.

FPIs’ flight

To make matters worse, FPIs have accelerated their flight, pulling out net (-) $8.2 billion during the period January-December 3, 2025. In the first three days of December, they pulled out $613 million, of which $369 million was on December 3 alone.

The long-term foreign investment commitment, FDI inflows, has also seen a net pulling out.

Also Read: Rupee breaches 90-level for first time against US dollar

In August and September, net FDI fell by (-) $3 billion because of resumed repatriation and disinvestment. There was an uptick in net FDI after it nosedived to $959 million in FY25, from $43.9 billion in FY24.

All these developments point to a weakened economy and the country losing its flavour as an investment destination – something that can’t be dismissed casually.

Impact of US tariffs

The CEA’s lenient view on the rupee depreciation also reflects another development: Indian goods exports to the US, which produce the maximum goods surplus for India, have taken a big hit in September and October because of the 50 per cent tariff.

In September, exports to the US fell by 11.9 per cent and in October by 8.58 per cent, leading to a net loss of $1.3 billion.

Understandably, the Indian government is trying to help exporters by keeping the rupee value low as the trade negotiations to lower the tariff continue. The RBI’s reluctance to aggressively intervene in the forex market—as it did under the stewardship of Shaktikanta Das—is a reflection of that.

Also Read: Congress takes swipe at PM Modi over rupee’s ‘free fall’

In fact, it was this changed approach that led the International Monetary Fund (IMF) to reclassify India’s forex management as “crawl-like arrangement”, two years after branding it “stabilised”. It would also mean that the RBI may not prop up the rupee in any significant way as it did under the stewardship of Shaktikanta Das.

India can afford letting the rupee slide for now because inflation is at record low, falling to 0.25 per cent in October and averaging 1.5 per cent during June-October.

Weakened USD

Ironically, the sharp fall in the rupee against the USD is at a time when the latter has weakened considerably since January 2025, after Donald Trump took over as US President. Data shows that the dollar index, against six other currencies, has fallen by 10.5 per cent until December.

Another point to ponder is that the rupee has fallen 5.3 per cent year-to-date against the USD, and is underperforming most other Asian currencies.

Also Read: Why Trump tariff could seriously dent Indian economy in multiple ways

An under-performing or weak currency is a reflection of weak economic fundamentals; economies which do well have stronger currencies.

Given these circumstances, how the Monetary Policy Committee (MPC), holding its December round of meeting now, reacts remains to be seen.

But there is no doubt that the CEA and other policymakers have a job on their hands, which is to find out why the currency continues to slip when growth is robust and particularly gangbuster in Q1 and Q2 of FY26.