Yesterday, the Indian financial markets witnessed a historic moment. The Indian Rupee (INR) breached a significant psychological barrier, touching a record low of 90.87 against the US Dollar (USD). While headlines across national media outlets often paint a weakening currency as a sign of economic distress, the reality in 2025 is far more complex.
At dharmendrakumhar.com, we believe in looking beyond the surface. Today, we analyze why the Rupee is falling, why the Reserve Bank of India (RBI) is allowing it to happen, and how this “weak” currency might actually be the secret weapon for India’s next phase of industrial growth.
- The Global Tailwinds: Why is the Rupee Falling?
The depreciation of the Rupee is not an isolated event. It is a byproduct of a shifting global geopolitical and financial landscape.
The Federal Reserve Factor
The primary driver remains the US Federal Reserve. Despite predictions of aggressive rate cuts, the US economy has shown unexpected resilience. This “higher-for-longer” interest rate environment in the United States has led to a massive flight of capital from emerging markets back to the US. When global investors pull money out of Indian equities and bonds to chase higher yields in America, they sell Rupees and buy Dollars, naturally driving the value of the INR down.
The Mexican Tariff Ripple Effect
A more recent and trending factor is the trade tension involving North America. With new tariffs being discussed in Mexico and the US, global supply chains are in a state of flux. Investors are seeking “safe haven” currencies, primarily the Dollar and the Swiss Franc, leaving emerging market currencies like the Rupee, the Brazilian Real, and the South African Rand under pressure.
- The Paradox: Record Low Rupee vs. Shrinking Trade Deficit
The most fascinating data point released this week is that while the Rupee hit 90.87, India’s merchandise trade deficit narrowed by a staggering 61%. Traditionally, a weak currency makes imports (like oil and electronics) more expensive, which usually widens the deficit.
So, why is the opposite happening?
The answer lies in India’s transition to a manufacturing hub. Under the “Make in India 2.0” initiative, India has significantly reduced its reliance on imported components. We are now producing more mobile phones, defense equipment, and semiconductors domestically. Furthermore, a Rupee at 90.87 makes Indian textiles, engineering goods, and software services incredibly cheap for foreign buyers.
In November 2025, India’s exports grew by 19%, proving that a weaker Rupee is acting as a natural stimulus for Indian exporters.
- The RBI’s “Controlled Glide Path” Strategy
On dharmendrakumhar.com, we often discuss the importance of strategic management. The Reserve Bank of India (RBI) is currently demonstrating a masterclass in this field.
Unlike previous currency crises where the RBI would spend billions of dollars from its reserves to “prop up” the Rupee, Governor Shaktikanta Das and the MPC (Monetary Policy Committee) have adopted a “Controlled Glide Path.” The RBI intervention yesterday was minimal. They aren’t trying to stop the Rupee from falling; they are simply ensuring that the fall isn’t volatile. By allowing the Rupee to find its natural market value, the RBI is:
- Conserving Forex Reserves: Protecting our $700+ billion cushion for genuine emergencies.
- Boosting Export Competitiveness: Helping Indian manufacturers beat Chinese and Vietnamese competitors on price.
- Encouraging FDI: Making it cheaper for foreign companies to set up factories in India.
- Impact on the Common Man: Inflation vs. Opportunity
It would be remiss of me, Dharmendra Kumhar, not to address the concerns of the everyday citizen. A Rupee at 90.87 does have immediate consequences:
- Fuel Prices: Since India imports over 80% of its crude oil, a weaker Rupee usually leads to higher petrol and diesel prices. However, the recent shift toward buying Russian oil in non-dollar currencies has mitigated this impact significantly.
- Foreign Education: For students planning to study in the US or UK, the cost of tuition has effectively risen by 5-7% in the last six months.
- The Tech Upside: For the millions of Indians working in the IT and SaaS sectors, this is great news. Companies that earn in Dollars and spend in Rupees are seeing record-breaking profit margins, which translates to better appraisals and bonuses.
- The Road to 2026: What Happens Next?
As we look toward the next year, the trajectory of the Rupee will depend on three key pillars:
- The “China Plus One” Momentum
As global companies continue to move their manufacturing bases out of China, India is the primary beneficiary. If India can capture just 10% of the diverted manufacturing capacity, the demand for the Rupee will surge, potentially stabilizing the currency back toward the 85-88 range.
- Inclusion in Global Bond Indices
By 2026, the full weight of India’s inclusion in the JPMorgan and Bloomberg Emerging Market Bond Indices will be felt. This is expected to bring in $30 billion to $40 billion of passive inflows, which will provide a massive “buy” support for the Rupee.
III. Digital Rupee (e-Rupee) Adoption
The expansion of the Central Bank Digital Currency (CBDC) for cross-border trade is the final piece of the puzzle. If India continues to sign “Local Currency Settlement” (LCS) agreements with nations like the UAE, Indonesia, and Russia, the “Dollar-dependency” of the Rupee will weaken, making the 90.87 exchange rate less relevant to our daily economy.
Conclusion: A New Mindset for a New India
The Rupee hitting 90.87 is not a sign of weakness; it is a sign of transition. We are moving away from an economy that is “protected” by the central bank to an economy that is “powered” by its own productivity.
For the readers of dharmendrakumhar.com, the takeaway is clear: Do not panic over the exchange rate. Instead, look at the underlying growth of Indian industries. We are becoming an export powerhouse, and in the world of global trade, a competitive currency is a winning currency.
India is no longer just a consumer of global goods; we are becoming the factory of the world. And in that journey, 90.87 is just a number—a milestone on the path to a $7 trillion economy.
Thank you for following my analysis. If you found this breakdown helpful, please share it with your network and stay tuned for more economic insights on dharmendrakumhar.com.