Export Paradox: Why India's rupee at its weakest hasn't sparked a global surge
TRADE ANALYSIS
In early December 2025, the Indian rupee (INR) slipped through the psychologically important ₹90 per USD level and then went on to mark fresh record lows. By mid-December, it was down roughly 5–6% year-to-date, making it Asia’s weakest major currency this year.
Normally, a weaker currency is supposed to deliver a “silver lining”: exports become cheaper for overseas buyers, orders rise, and factories get busier. But 2025 has highlighted a tougher reality—FX weakness can lift exporter realizations in rupees without reliably lifting export volumes, especially when tariffs, input costs, and competitiveness constraints move the other way.
1. The Perfect Storm Behind the 2025 Slide
The rupee’s decline wasn’t a single-factor story. It reflected a convergence of pressures:
Punitive U.S. tariffs (goods): In August 2025, the U.S. administration imposed additional tariffs of up to 50% on certain Indian goods, directly hitting price competitiveness.
A wider merchandise trade gap: India’s merchandise trade deficit hit a record $41.7 billion in October 2025.
Capital outflows: Foreign portfolio investors were net sellers, with 2025 equity outflows reaching approximately $18.4 billion.
Net FDI compression: Net FDI flows turned negative in late 2025 as repatriation dynamics outweighed new inflows.
2. Why the “Silver Lining” Didn’t Translate Into a Surge
The tariff gap is too large: A 5% currency move can’t offset 50% import duties.
Exporters often import what they export: For sectors like electronics and specialty chemicals, a weaker INR raises the cost of imported components, compressing margins.
Hedging and contracts delay the impact: Most large exporters use forward contracts, meaning the "benefit" of the 90-level won't hit their books for several quarters.
3. Winners and Losers: The Sectoral Divide
Relative Winner (IT Services): With low import intensity and no service-specific tariffs, the IT industry (revenue $280B+) remains the primary beneficiary of USD strength.
Pressure Points (Aviation & Energy): Airlines like IndiGo have reported massive forex-related losses due to USD-denominated lease and maintenance payments.
Stalled Upside (Labor-Intensive Goods): Textiles and apparel are struggling to capitalize on the weak INR due to intense competition from countries with better market access (FTAs).
4. Strategic Outlook: Moving Beyond Currency
Diversify market concentration: Shifting focus to the Middle East, Europe, and Africa to bypass U.S. tariff barriers.
Raise domestic value-add: Reducing dependence on imported intermediates to protect against FX-driven cost inflation.
Trade Diplomacy: Finalizing trade agreements to unlock the competitive potential that currency alone cannot provide.
Bottom Line
The rupee’s weakness has acted as an automatic stabilizer, but it hasn't sparked a clean export boom. If India wants a true surge, it will come from value-add depth, reliable supply chains, and smarter market access—the kind of fundamentals that keep working even when currencies stop cooperating.
