Sitharaman hints at hidden forces behind the rupee’s fall

Union Finance Minister Nirmala Sitharaman on Sunday said that although India’s domestic fundamentals remain strong, global uncertainty is putting pressure on the rupee.Speaking after the budget presentation, Sitharaman said the government was “doing everything domestically to make sure your base situation is good” but added that “global uncertainty is impacting” the movement of the rupee against the US dollar.

His remarks come at a time when the Indian currency is seeing volatility, falling to an all-time low of 92 against the strong dollar, amid changing interest rate expectations in the US and geopolitical risks in major economies.
He suggested that the rupee’s performance was shaped by external forces rather than internal weaknesses.

Meanwhile, the Economic Survey by India’s Chief Economic Advisor V. Anantha Nageswaran argued that the currency is not hurting the economy for now as it has cushioned the impact of higher US tariffs on India’s exports.

The survey found that the valuation of the rupee does not reflect India’s underlying strength. “In other words, the rupee therefore falls below its weight,” he said, adding that an undervalued currency helps offset the impact of high American tariffs on Indian goods to some extent. It was also stated that there was no immediate inflation threat from expensive crude oil imports.
However, the document warned that prolonged weakness could impact investor sentiment. “The reluctance of investors to commit to India requires scrutiny,” he said.

What does the Economic Survey say?

The survey highlighted that India’s strong growth has not translated into currency stability. The rupee underperformed despite GDP growth of 8.2% in the September quarter.

India’s structural trade deficit was stated to be an important reason. Although service exports and remittances create a surplus, they are not enough to close the goods trade deficit.

“India depends on foreign capital flows to maintain a healthy balance of payments. Once they start drying up, rupee stability becomes a loss,” the survey said.

Rupee at record low

This vulnerability came into sharp relief this week. The rupee hit an all-time low on Thursday, crossing the 92 per dollar mark, breaking its previous record of 91.9650 last week. The currency has lost about 2% of its value so far this year and about 5% since the US imposed high tariffs on Indian goods.

Investors said foreign portfolio outflows and institutional demand for dollar hedging outweighed the impact of India’s strong domestic growth story. The Reserve Bank of India appeared to have intervened before the market opened to slow the decline as the rupee approached the psychologically important level of 92.

The RBI argued that it was not targeting a specific level for the rupee and was only taking steps to limit excessive volatility.