The Indian rupee lagged in 2025 despite India’s strong economic fundamentals, the Economic Survey 2026 said on Thursday, arguing that a weaker currency does not “hurt” for now as it softens the impact of higher US tariffs on exports.
The rupee’s valuation does not accurately reflect India’s stellar economic fundamentals, said the survey. "In other words, the rupee, therefore, is punching below its weight. Of course, it does not hurt to have an undervalued rupee in these times, as it offsets to some extent the impact of higher American tariffs on Indian goods, and there is no threat of higher inflation from higher-priced crude oil imports now."
However, it does cause investors to pause, warned the survey. "Investor reluctance to commit to India warrants examination."
The Indian rupee underperformed in 2025, said the annual document. "India runs a trade deficit in goods. Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty."
The Indian rupee hit an all-time low on Thursday, as continued weakness in foreign capital flows and corporate' rush to hedge against further depreciation overshadowed impulses from a buoyant domestic economy.
The rupee declined past the key 92 barrier, eclipsing its previous all-time low of 91.9650 hit last week.
The currency has declined 2% so far this year and nearly 5% since U.S. President Donald Trump imposed steep tariffs on India's merchandise exports. That's even as India's GDP grew 8.2% in the quarter ended September 30, according to official data.
The Reserve Bank of India likely intervened before the local spot market opened on Thursday, traders said. The intervention was likely intended to slow the fall as the rupee approached the psychologically important 92 level, a trader at a foreign bank said.
The rupee has declined to near 92 levels after breaking past 91 for the first time only six trading sessions earlier. The central bank has maintained it does not target any level or band on the currency and only steps in to curb excessive volatility.
Steep U.S. tariffs, chunky foreign portfolio outflows, rise in bullion imports and corporate anxiety over the rupee's fortunes have kept the currency under pressure even as India continues to be the world's fastest growing major economy, recently closing a free trade deal with the European Union.
Since the tariffs came into effect, the rupee has declined 7.5% each against the euro and the Chinese yuan too. On a trade-weighted basis, the rupee's real effective exchange rate stood at 95.3 in December, the lowest in a decade, according to central bank data.
"While we anticipate current elevated US tariffs on Indian exports to eventually be lowered, the delay in the meantime remains a drag on India's external balances," analysts at Goldman Sachs said in a note. The firm expects the rupee to fall to 94 per dollar in the next 12 months.
Source Name : Economic Times