Opinion The rupee’s real problem: A rising import bill and stagnant exports
Persistent external-sector vulnerabilities, not short-term shocks, are driving India’s currency under pressure
Unless the country expands its export capacity and addresses the persistent gaps in competitiveness, the rupee will continue to reflect its unrealised economic potential Written by Ejaz Ayoub
The recent slide in the Indian rupee presents a paradox. On the one hand, domestic fundamentals look solid: Retail inflation is well inside the RBI’s tolerance band, growth remains strong as India’s economy expanded by 8.2 per cent year-on-year in Q2 FY26, the fastest in six quarters, and global demand indicators such as US manufacturing PMI (purchasing managers’ index) have weakened, which should typically weigh on the dollar. Yet, contrary to expectations, the rupee has slid sharply. Commentary has focused on the immediate trigger — the tariff rhetoric from the Donald Trump administration and the possibility of a more protectionist global trade environment. But to attribute the depreciation solely to geopolitics is to miss the deeper and chronic story. The rupee’s vulnerability is rooted not in any one global shock, but in long-standing structural weaknesses in India’s external sector. Unless these weaknesses are addressed, the rupee will continue to face periodic pressure regardless of who occupies the White House.
At the heart of India’s exchange rate challenge lies a basic mismatch: A large external dependence coexisting with a modest export presence. India relies heavily on a narrow basket of imports, i.e., crude oil, gold, electronics, edible oils, and increasingly, an array of intermediate goods for domestic manufacturing. This import profile has remained largely unchanged for decades. What has changed is the scale: As per capita incomes have risen and import-dependent manufacturing has expanded, India’s import appetite has grown faster than its ability to earn foreign exchange through exports. Reflecting this imbalance, a recent HSBC assessment expects the current-account deficit to nearly double from 0.6 per cent of GDP last year to around 1.4 per cent of GDP in FY26, emphasising the structural pressures building on the rupee.
Yet India’s global export performance has remained disappointingly stagnant. In merchandise trade, India still accounts for just 1.8 per cent of global exports, almost unchanged since Independence. Even in services, India’s relative strength, the share remains only 4.3 per cent as of 2023. The contrast with China is sobering. In 2001, China accounted for 4 per cent of world exports. By 2022, that figure had surged beyond 15 per cent, powered by deep integration into global value chains, large-scale logistics investments, and a stable, predictable policy architecture that enabled firms to scale efficiently. India, on the other hand, continues to grapple with high logistics costs, inconsistent quality control, regulatory unpredictability, and limited participation in cross-border supply chains.
This structural imbalance, i.e., small export capacity paired with large import dependence, explains why the rupee is repeatedly vulnerable. As long as India’s import bill outpaces the growth of its export earnings, the current account deficit will remain structurally elevated. That in turn guarantees intermittent downward pressure on the rupee.
It is in this context that claims that “a weaker rupee will boost exports” need to be viewed with caution. This argument presumes Indian exports are strongly price-sensitive and that exchange-rate depreciation naturally generates competitiveness. But the evidence suggests otherwise. The rupee has depreciated by over 35 per cent against the US dollar in the last decade (from ₹66.64 per dollar in December 2015 to roughly ₹89.92 in December 2025), yet India’s share in global merchandise exports has barely budged. The primary reason is that many of India’s export industries, from electronics to petrochemicals, are heavily import-dependent. A weaker rupee raises the costs of inputs, neutralising any pricing advantage. And in high-value sectors such as pharmaceuticals, engineering goods or IT-enabled services, global competitiveness rests far more on quality, reliability, technological capability, and supply-chain integration than on currency movements. The experiences of Germany and South Korea demonstrate that successful export economies often operate with strong currencies and that devaluation is not a prerequisite for competitiveness.
If the underlying issue is structural, what can the Reserve Bank of India do? Realistically, only so much. The RBI’s role is to maintain price stability and ensure the orderly functioning of financial markets. Its interventions, whether in the form of spot-market operations, forward-market adjustments, or liquidity management, can smooth volatility and prevent disorderly movements, but they cannot alter the fundamental imbalance between India’s dollar demand and dollar supply. Nor can the central bank enforce an artificially strong rupee without risking dollar reserve depletion or triggering capital outflows. Equally, a deliberate devaluation strategy provides no durable export advantage in an economy whose export sectors rely on imported inputs and face deeper supply-side constraints. The RBI can buy time and cushion shocks; it cannot rewrite the structural script.
Strengthening the rupee, therefore, lies not in the domain of monetary policy but in the broader economic policy framework. India needs a comprehensive push to scale up its export ecosystem. Competitiveness now depends not on low-wage manufacturing but on innovation-driven productivity. That requires stronger R&D capabilities, deeper university–industry linkages, and incentives for firms to adopt advanced technologies. Export performance is closely tied to logistics quality; high freight costs, port delays, inadequate cold-chain systems, and fragmented transport networks undermine competitiveness by several percentage points. The PM Gati Shakti programme is an important correction, but its impact hinges on sustained execution rather than announcement.
Trade policy also needs stability. Frequent tariff changes, unpredictable compliance requirements, and inconsistent regulatory signals discourage firms from embedding themselves in global supply chains. A more stable, rules-based trade regime would improve investor confidence and enable long-term planning. India’s external strategy must also adapt to the shifting geopolitics of supply-chain diversification. Proactive engagement in free-trade agreements, supply-chain partnerships, and regional economic frameworks would broaden market access and reduce external vulnerability.
External financing priorities need rebalancing as well. India’s heavy reliance on foreign portfolio inflows exposes the rupee to global monetary cycles, especially Federal Reserve decisions that trigger shifts in “hot money.” These flows can exit as rapidly as they enter, amplifying currency volatility. What India needs instead is a greater reliance on FDI, which brings long-term capital, technology transfers, and deeper integration with multinational production networks. Stable capital flows create a more durable base for currency stability than speculative inflows ever can.
The rupee’s recent depreciation is not an isolated event triggered by tariffs or global rhetoric. It is a reminder that a currency becomes strong not because a central bank defends it, but because the economy behind it produces goods and services the world wants to buy. India’s challenge is therefore not monetary but structural. Unless the country expands its export capacity and addresses the persistent gaps in competitiveness, the rupee will continue to reflect its unrealised economic potential.
The writer is an economist and former chief dealer (foreign exchange), Jammu & Kashmir Bank
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