MUMBAI: Chief economic advisor V Anantha Nageswaran may be happy about not losing sleep over the rupee tumble that has crossed the 90-mark in two successive days and has plumbed to 90.13 today—a 5.7 percent depreciation so far this year, and the tariffs-hit exporters may be laughing their ways to the banks too, but the larger and real impact of a cheaper rupee on the real economy and thus on the man on the street, is not as light as we are being made to believe.
Simply because, the sectors getting the benefits of a cheaper rupee are far fewer than the sectors getting hit hard by the currency depreciation. The country’s total earnings from goods and services exports were only $491.80 billion during April-October FY26, up of 4.84 percent over the same period last fiscal and in spite of the 50 percent tariffs on shipments to the US. Of this, merchandise exports fetched only $254.25 billion during this period and the rest came in from services.
So in a nearly $4-trillion economy, exports just add up around 12 percent of the GDP but the CEA is happy that some segments of the economy is gaining and thus he is not losing his sleep over those large chunk of the economy that will be bleeding soon.
The exchange rate value of the rupee can be looked at mainly from two angles: the paired rates against the dollar, euro, pound and the yen—all of which have seen steep fall in recent weeks. For instance, in the last week November, the rupee’s exchange rate fell against the dollar (from 88.64 to 89.46) and also against the euro (102.32 to 103.63), the pound (116.08 to 118.27) and the Japanese yen (0.5642 to 0.5720)—making the rupee depreciation is nothing but complete.
This came in amidst a weakening dollar index too, which is trading at around 99.4.Another way to look at the issue is looking at the real effective exchange rate (REER) of the rupee which pairs the rupee against a basket of 20 other similarly priced currencies. And those who support the ‘let’s-follow-the-REER-and-not-the-exchange-rate-per-se, should note that even the REER value is down to just 94.94 only as of October and released in November (RBI updates REER only monthly and the next date is December 18) and this was 86.01 in 2014 when prime minister Modi in the run to the April-May 2014 general elections promised multiple times that if elected he would make sure that each rupee fetches a dollar in exchange.
That was when the rupee was averaging 60.95 to a dollar in 2013-14. During his first term (2014-19) the rupee averaged 72.15 and in the second term one dollar fetched 83.23 in 2019 and one-and-a-half-years into the third term, it is trading at 90-plus. So this is the political value of the beleaguered currency. And more strikingly, the REER averaged 118.7 in the past 21 years ending 2025. So even against a broader basket of currencies, the rupee fall in nearly fully complete.
Sectors benefitting from Re@90 plus the exporters --the biggest beneficiaries should remember that they together add up just about 12 percent of GDP. This means that as much as 88 percent of the economy and the large majority of the population is going to be hit. As the rupee falls against more currencies, especially in those countries where there are a larger number of desis working and sending money, states like Kerala and the people dependent on those monies will be happier lot. But the size of that lot is what needs to be looked at.
Also, even those who get more monies in their bank accounts will pay more for everything they will buy using that additional money—from petrol to vegetables, to meat and fish, as the transportation cost will go up if the oil prices goes and if retail prices of petrol and diesel are suppressed as they are now, we will be continuing to pay that through cesses and other levies.
And the remittances share in the $4-trillion GDP was just $135.46 billion in FY25, according to the Reserve Bank data, marking an all-time high. In FY24 this was much lower at $119 billion.
Which Sectors Will Bleed?
As against these two sectors of the economy, the rest everything will be hit, depending on the pass through, of course. Topping the list is crude oil imports, which the country depends as much as over 89 percent of the domestic demand. The FY25 bill $161 billion, thanks to benign oil prices and in the first half of FY26 the import bill stood at $60.7 billion, down a 14.7 percent from $71.2 billion a year ago, again thank to falling global prices.
Higher oil import will have its larger impact on the current account balances which is already in a precarious position now with the massively widening trade deficit and galloping gold imports. Every analyst sees CAD printing in at over 1.3 percent of GDP this fiscal.
Food Items
As imported cost of oil rises, despite a softening crude prices, this will push transportation cost up, which will affect everything that’s ferried across the nation. Already veg prices are on the boil with almost all everyday items seeing 40-45 percent spike in retail prices—1kg of drumstick is commanding an astronomical Rs 500 now!
Of course, finance minister Nirmala Sitharaman may choose to do an en core of her famous onion talk this time too and the CEA can still say that he is not losing his sleep over the skyrocketing drumstick, too—of course people will not go to bed on empty stomachs because they cannot afford the sticky veggie.
Inflation
All these will add up to retail inflation—a fight that RBI can ill-afford to lose. Thanks to supportive fiscal (supply side measures primarily as government borrowing continues to head north unabated) and monetary policies the economy has won long-fought hard battle against price rise, which has seen retail inflation plunging to a multidecadal low of 0.25 percent in October.
But nobody expects the price index to remain where it has been in the past few months and it will surely tick up faster than slower now. If inflation spirals out again, which is more likely than not, all the brownie points of a blowout GDP growth and the continuing eulogy about being the fastest growing large economy will turn out to be out of place as RBI will have to reverse its easy money policy sooner than later and then it will be a fallback to the price rise hit economy again.
What Can Be Done?
Curb gold and silver imports: More than the actual loss of value of your penny, there is a sentimental value and thus a level of comfort value that a reasonably priced exchange rate that a citizen gets. So to begin with government can think about putting some restrictions on gold and silver imports, which other than containing CAD, will also help cut gold prices, which has already rallied more than 70 percent this year alone, which in turn will help everyone who has a fine comb for the shining metal.
Arrest FPI pullout: Another effective way is to arrest the massive foreign fund exits. Foreign investors have been jittery for the past 14 months and have pulled out over Rs 1.43 trillion from equities so far in 2025 on top of around Rs 2 trillion worth of stocks dumped during October-December 2024 sell-out and this has is one of the main reasons for the continuing pressure on the rupee. Though their biggest publicly stated reason for dumping domestic market was higher valuation, a correction in this has not deterred them from continuing to dump domestic stocks.