The rupee opened weaker on Tuesday, slipping 10 paise to 90.15 per US dollar in early trade. According to currency dealers, stronger dollar demand and global uncertainty have dampened investor sentiment. The opening level marks a clear continuation of the rupee’s weakening trend.
Since the beginning of 2025, the rupee has depreciated by more than 5%. The pressure on the exchange rate intensified after a major setback in October, when India’s exports fell by 12%, largely due to a decline in shipments to the United States. High US tariffs are now visibly hurting India’s largest export market.
Is the Rupee’s Fall Actually Good News?
Interestingly, a weaker rupee makes Indian exports cheaper for foreign buyers. This can soften some of the damage caused by higher US tariffs.
This time, two factors are working simultaneously:
- A decline in the nominal exchange rate
- A narrowing of the inflation gap between India and the US
India’s consumer inflation has dropped below 1%, while inflation in the US remains stable at around 2–3%. This means that in real terms, the rupee is now more undervalued against the dollar, improving India’s export competitiveness.
However, the flip side is that American goods have become more expensive for Indian consumers.
Real Exchange Rate and Its Impact on Exports and Imports
Movements in the real exchange rate affect both exports and imports—an important point because global trade today is deeply interconnected.
1. Global Value Chains
Nearly 70% of world trade passes through global value chains, where goods cross multiple borders before becoming final products.
India is not deeply embedded in these chains like some export-driven economies, but it relies heavily on imported raw materials and intermediate goods.
According to EXIM Bank (2022–23):
- Overall raw material import intensity in manufacturing: 33.4%
- Gems & jewellery: 68.4%
- Electronics: 64%
- Chemicals: 63%
For such sectors, the competitive advantage gained from a weaker rupee is diluted by the increased cost of imported inputs.
India’s China Dependence: A Double-Edged Sword
India’s dependence on China for key industrial inputs is another crucial factor. China dominates or significantly contributes to 10 of the top 15 import categories.
Fortunately, China has been experiencing persistent deflation, meaning Chinese products remain cheap, helping offset the costlier rupee.
But this creates a serious problem for Indian manufacturers:
- From January 2024 to October 2025, China’s average inflation: 0.04%
- India’s average inflation: 4%
Even with a weaker rupee, importing from China may still be cheaper than producing domestically.
This is why proposals for “protective duties” on Chinese steel products are gaining traction.
The Limits of Currency Depreciation
Studies show that if a firm imports more than 30% of its intermediate inputs, the positive impact of a real currency depreciation on exports disappears.
India’s import-intensive electronics sector is a clear example.
Long-Term Solution: Competitiveness, Not Just Currency
In the 1970s, the Asian Tigers relied on managed exchange rates to drive export-led growth. Such strategies are unlikely to work today. Currency depreciation may offer temporary relief, but sustainable export performance depends on productivity, global demand, and structural strength.
India has made progress in recent years:
- Labour reforms
- Easing foreign investment rules
- Reducing tax burdens
Yet India ranks 41st out of 69 countries on a widely tracked competitiveness index—held back by weak infrastructure and bureaucratic inefficiencies.
Conclusion
A weaker rupee does provide short-term export benefits, but heavy reliance on imported inputs, China’s price competitiveness, and domestic productivity challenges severely limit these gains.
Long-term, India’s success will depend on strengthening infrastructure, improving efficiency, and building globally competitive industries—not just on currency movements.