A weak rupee helps no one
When the rupee breached the 90 level, it was not just a numerical fall. Over the last 15 years, the rupee has depreciated by over 100 per cent. The government needs to shake off its slumber and take both short-term and long-term measures to ensure that the rupee not only stabilises around this level but also starts gaining some ground, pretty quickly.
Many people debunk the theory that a weak rupee is really good for exporters, as it allows importers to get goods at a competitive rate. They forget that India’s imports are nearly four times its exports, and a weak rupee only makes imports costlier. Even the Union Minister of Commerce, Piyush Goyal, is of the opinion that a strong rupee is good for the nation. Speaking at the Assocham annual session on The Great Reset: Reinforcing India’s Global Positioning in March earlier this year, he said: “I personally am not of the old school of thought or one section of industry or society or exporters which believe that a weak rupee or a weak currency supports exports. I believe a strong currency reflects the strength of a nation and will always be good for exports, because India, at the end of the day, is a net importer of goods. A strong currency supports the Indian economy.”
Even Prime Minister Narendra Modi, when his government was voted in for the first time in 2014, had gone on record to state that a weak rupee is a sign that, as a nation, we are living beyond our means. A strong rupee is a sign of India’s economic muscle.
Just before Modi’s government assumed power the rupee had tumbled sharply. In 2013, the rupee slid significantly. From R58.31 to a dollar, it weakened to a low of R68.85 in August. It was R44.85 on December 6, 2010. In essence, it had fallen by nearly 50 per cent by 2013. This was the period when the government had reportedly gone into a paralysis mode.
Growth, confidence, inflation, fundamentals, and, most importantly, sentiment are the major factors determining the value of the rupee. India is growing at the fastest pace, with the RBI recently raising the GDP growth forecast to 7.3 per cent. Inflation is well under control, and confidence – both within and outside the country – is also high.
The government needs to identify the problematic areas and take necessary steps. One such area is imports. Our trade deficit is a cause for concern. The total deficit for April-October 2025, including merchandise and services, stood at $78.14 billion, compared with under $70 billion in 2024. This is despite low crude oil prices. The main reason for the widening deficit was the sharp rise in gold imports, which rose to $41.23 billion. While one cannot curb gold imports entirely, it would be worth revisiting the Tarporewala Committee’s report, which had recommended that NRIs bringing in gold should be taxed at a commercial rate. At an individual level, individuals bringing in gold can also be taxed.
While crude oil, a major import, is relatively inelastic, the government can increase the ethanol blending limit from the current level of 20 per cent to 30 per cent over the next 5 years. Brazil has been able to ensure almost 100 per cent ethanol blending and allows consumers to use petrol or ethanol. Indian refineries are making very good profits, as the selling prices of petrol and diesel have remained unchanged. Besides, the government can also do more to reduce the quantum of imported oil by substituting coal or renewable energy. It can also seriously reinforce the ‘Swadeshi’ call to the people.
Changing the sentiment of foreign portfolio investors (FPIs) will not be difficult. With markets at an all-time high, the government can tinker with some regulations without losing revenue. One such measure would be to make dividends tax-free in the hands of Indian recipients. As was done earlier, companies can deduct 10 per cent tax at source, which would be within the double-taxation treaties of most countries. This would also save the government the task of monitoring dividends received by retail investors. The government can also examine the viability of reducing long-term capital gains tax or doing away with it altogether. With markets slowly gaining traction, it will not be long before FPIs also realise that India’s growth story is intact and cannot be ignored.
Till such time as trade treaties with the US and the EU fall into place, the government has to take measures to revive FPI confidence in the stock markets. This is necessary not just to arrest the outflows of $17 billion seen recently, but also to attract at least twice that amount as inflows. Currency depreciation and appreciation cannot be allowed to drift according to the whims and fancies of traders and speculators; they need to be closely and vigorously monitored.