India’s external sector is being tested again as the imbalance between goods trade and invisible earnings weighs on the rupee. This is the reality underscored by the Economic Survey 2025–26 today and it reflects starkly in currency market movements. On the day the Survey was presented, the rupee slid to another lifetime low of around 91.98 against the US dollar, symbolising the growing strain created by the inability of India’s surplus in services exports and remittance inflows to fully offset its large and persistent goods trade deficit.
While the country has built a strong and globally competitive services sector that generates substantial foreign exchange through information technology, business services, financial services, tourism and transportation, and continues to receive robust remittances from its overseas workforce, these inflows are no longer sufficient to neutralise the scale of its merchandise import bill. Imports of crude oil, gold, electronics, fertilisers and capital goods continue to significantly exceed exports of manufactured products, creating a structural gap that invisible earnings alone cannot bridge.
According to the Survey, this imbalance means that India’s overall balance of payments relies increasingly on foreign capital inflows to stay comfortable. When global risk appetite is strong and foreign investors are willing to allocate capital to emerging markets, this dependence is less visible. However, in periods of heightened uncertainty, tighter global financial conditions or geopolitical stress, portfolio flows tend to weaken or reverse. The Survey suggests that it is in these moments that the vulnerability of the rupee becomes evident, as the cushion provided by services exports and remittances proves insufficient on its own.
The recent depreciation of the rupee is therefore portrayed less as a reflection of deteriorating domestic fundamentals and more as a consequence of this structural external gap interacting with global headwinds. India continues to record relatively strong economic growth, moderate inflation, and stable domestic financial conditions. Banking sector balance sheets are healthier than in past cycles, and credit growth remains supportive of investment and consumption. Yet these positives have not translated into currency strength because exchange rates are ultimately determined by the flow of foreign exchange across borders, and India’s trade structure still tilts decisively towards deficit in goods.
The Survey characterises the rupee as “punching below its weight”, implying that its market value does not fully capture the underlying resilience of the Indian economy. At the same time, it acknowledges that persistent weakness in the currency is not costless. A depreciating rupee raises the local currency cost of imports, particularly energy, which can feed into input prices for industry and potentially into consumer inflation over time. It also increases the burden of servicing external debt and can weigh on investor confidence, especially if depreciation is perceived as reflecting deeper structural problems.
There is, however, a nuanced assessment of the effects of a weaker currency. The Survey points out that an undervalued rupee can enhance export competitiveness, partially offsetting the impact of higher tariffs and weak global demand. For labour-intensive and price-sensitive export sectors, currency depreciation can provide a margin of relief. So far, the pass-through of a weaker rupee to inflation has remained contained, aided by relatively stable global commodity prices and policy management. This has allowed authorities some room to tolerate currency weakness without immediate macroeconomic instability.
Nevertheless, the underlying issue remains the composition of India’s trade. Over the past decade, the economy has become a global powerhouse in services, but manufacturing exports have not expanded at a pace sufficient to narrow the merchandise deficit decisively. While production-linked incentive schemes, infrastructure spending and industrial policy initiatives are beginning to reshape the manufacturing landscape, their impact on export capacity is gradual. Until merchandise exports grow significantly faster than imports, the economy will continue to depend on invisible earnings and capital inflows to balance its external accounts.
The Survey’s warning that services and remittances alone cannot guarantee currency stability is therefore also a call for deeper structural transformation. Strengthening manufacturing competitiveness, diversifying export baskets, integrating more effectively into global value chains, and reducing dependence on imported energy through domestic production and renewable capacity are seen as critical to achieving a more durable external balance. Over time, such shifts would reduce the economy’s exposure to volatile global capital flows and provide a firmer foundation for currency stability.
According economic analysis, in the near term, the rupee’s record lows highlight the limits of India’s current external buffers. Strong services exports and steady remittances remain valuable pillars of support, but they can no longer be viewed as a complete shield against pressures arising from a large goods trade deficit and shifting global financial conditions. The Economic Survey’s assessment suggests that unless the structure of India’s trade evolves in favour of higher-value and higher-volume merchandise exports, the currency will remain susceptible to bouts of weakness, even in periods when domestic growth and macroeconomic fundamentals appear sound.