The Quiet Cost of a Weaker Rupee

A Mumbai-based importer of small machine parts has stopped checking the rupee-dollar exchange rate out of curiosity. These days, he checks it the way one checks a relative's blood pressure, quietly and anxiously, hoping today is not the day it spikes. His margins, payment schedules and ability to quote prices three months in advance now depend on a number he does not control. That sense of watching something slip away without it ever quite announcing itself as a crisis is arguably the most accurate description of what has been happening to the Indian rupee. The rupee's story is not one of dramatic collapse but of gradual erosion, and perhaps because it has unfolded slowly, it has stopped drawing attention.

India has a curious relationship with currency depreciation. It is treated the way the weather is treated, today's movement matters and yesterday's is forgotten. A sharp one-day fall becomes breaking news, while a breach of a psychological level, 85, 90 or 95, dominates television debates for a day or two before the headlines move on. The real story only becomes visible when the daily fluctuations are set aside and the trend is viewed over a longer horizon. The rupee spent much of 2024 trading in the low 80s against the US dollar, crossed 85 in early 2025, and was hovering between 87 and 88 by early 2026. It weakened into the mid-90s in the months that followed, touching an all-time low near 97 in July, according to Reserve Bank of India reference rate data, before recovering modestly to around 95 in early August as global oil prices eased. Over the past 12 months, the currency has lost close to 9 per cent of its value against the dollar. That is not a temporary wobble. It is a sustained trend.

Much of the public discussion, however, remains focused on immediate triggers, crude oil prices one week, a Federal Reserve announcement or foreign portfolio outflows the next. These triggers matter and influence exchange rates daily, but treating them as the entire explanation mistakes triggers for causes. Some of the pressure on the rupee is cyclical. Oil prices rise and fall, global investors periodically move money into or out of emerging markets, and central banks adjust interest rates, all of which create volatility that eventually passes. But a more persistent set of forces is structural. India continues to rely heavily on imported crude oil, paid for in dollars it cannot create. It depends significantly on portfolio investment to finance its external balances, which makes the currency sensitive to shifts in global investor sentiment. And with US interest rates remaining relatively attractive, global capital has continued to favour American assets, adding to worldwide demand for dollars. These structural pressures do not disappear because markets enjoy a few calm weeks, which is why the rupee remains vulnerable even when a specific trigger fades.

The Reserve Bank of India has largely recognised this reality. Rather than defending a particular exchange rate, it has focused on limiting excessive volatility, intervening when markets turn disorderly and stepping back when conditions stabilise. With foreign exchange reserves at around USD 682 billion as of late July 2026, according to RBI data, and the Monetary Policy Committee having held the repo rate at 5.25 per cent for a fourth consecutive meeting, the central bank has had the room to pursue this approach without triggering panic. It is a pragmatic and credible strategy, but smoothing volatility is not the same as reversing the underlying forces that continue to weaken the currency over time.

The effects of depreciation are also distributed unevenly, a point that tends to be overlooked. Export-oriented industries such as information technology and pharmaceuticals often benefit, since they earn revenues in dollars while reporting profits in rupees. A weaker currency can also improve the competitiveness of Indian exports and, over time, strengthen the country's position as a manufacturing base. But the costs are felt just as widely, even if they attract less attention. Importers face higher input costs that compress margins or are eventually passed on to consumers through higher prices.

Households pay more for imported electronics, edible oils and fuel. Families financing overseas education find that tuition fees become several hundred thousand rupees more expensive purely because the exchange rate has moved. Gold, which many Indian households treat as a form of long-term savings rather than speculation, also becomes costlier in rupee terms. None of this arrives dramatically. It accumulates quietly through thousands of everyday transactions that rarely make front-page news, which is likely why currency depreciation receives less public attention than petrol prices or food inflation, whose effects are more immediate and visible.

This is not to suggest that India faces an imminent currency crisis. It does not. Foreign exchange reserves remain substantial, macroeconomic fundamentals are considerably stronger than during earlier episodes of external stress, and economic growth continues to compare favourably with other major economies. But ‘manageable’ should not be confused with ‘resolved’. A currency can remain stable in the short run while continuing to weaken gradually for structural reasons, and recognising that distinction matters if policymakers are to address the deeper drivers of depreciation rather than merely its symptoms.

The more important question, then, is not whether the rupee should ever depreciate. Every economy experiences currency movements, and moderate depreciation can even support exports and economic adjustment. The real question is whether persistent weakness reflects rising competitiveness or unresolved structural dependence. If it is the latter, stabilising the exchange rate will require more than central bank intervention, reducing energy dependence, broadening India's export base, attracting more stable long-term foreign capital, and strengthening the country's overall external position. That, perhaps, is the real story of the rupee's recent journey, not a dramatic collapse or an impending crisis, but a quieter and arguably more consequential one, a gradual weakening that has become so familiar that few are still asking why it continues.

Disclaimer: The opinions expressed above are of the author and may not reflect the views of DSIJ.