By R. Suryamurthy
India is drifting into yet another familiar cycle of currency anxiety. The rupee has slipped to fresh lows, brushed up against the psychologically loaded 90-per-dollar mark, and triggered the usual storm of political point-scoring and expert cautioning. The noise is predictable; what it hides is far more consequential. The rupee’s fall is not the crisis. The real crisis is that India, even with a currency sliding to its weakest level in history, cannot convert that depreciation into export dynamism.
This is the paradox at the heart of the moment: the rupee is doing everything textbook economics says it should — weakening in line with global dollar strength, giving exporters a pricing edge, and supposedly making Indian goods cheaper in world markets. Yet exports are barely budging. Worse, in some sectors, depreciation actively hurts exporters more than it helps them.
Over the last decade, this contradiction has hardened into an unmistakable pattern. In 2013, India had a rupee of roughly 60 to the dollar and merchandise exports of $313 billion. Today, with the rupee sitting near 90, exports stand at around $440 billion. On paper, that looks like growth, but anyone who tracks global trade knows those numbers tell an underwhelming story. In real terms, adjusted for inflation, global price shifts and supply-chain volatility, India’s export expansion has been anaemic — nowhere close to what a 50% currency depreciation should have delivered.
Depreciation is supposed to be the adrenaline shot for exporters: foreign buyers find Indian goods cheaper, domestic producers find global markets more accessible, and the current account gains resilience. But for India, the textbook logic keeps failing because the textbook applies to economies where domestic frictions are low, input markets are efficient, and regulatory architecture encourages production scale. India, bluntly put, is none of these things.
Over the last ten years, India has built a manufacturing environment where costs keep rising, not falling. Input tariffs have climbed steadily, especially after 2018. Many raw materials and intermediates used heavily by export sectors now carry duties that squeeze margins even before a single component reaches a factory floor. When the rupee weakens, the pain is compounded: the importer not only pays more because the currency has fallen but pays more again because the tariff is levied on an inflated base. Every round of depreciation becomes an additional round of taxation.
Then there are the infamous Quality Control Orders — one of the most significant, least publicly debated developments in India’s manufacturing landscape. Introduced with the seemingly noble intent of curbing substandard imports and protecting consumers, QCOs mushroomed into a complex web of compliance rules that often did the opposite of what they promised. For everything from industrial inputs to chemicals to small machinery, the lack of certified testing capacity and slow approvals have triggered supply chain delays that exporters simply cannot afford. When a raw material arrives two weeks late because its supplier is trapped in procedural queues, a weaker rupee offers no advantage. Cost, time, and predictability — the holy trinity of competitiveness — all take a beating.
Logistics, despite improvements, remain a structural tax on Indian industry. Ports are faster than they used to be, but not fast enough to match economies that are India’s direct export rivals. Inland freight charges remain stubbornly high. Predictability in inter-state movement has improved post-GST, yet the time-cost of moving goods still sits above global benchmarks. This is the reality that quietly hollows out every promised benefit of rupee depreciation. A currency at 90 does not compensate for a container that spends hours waiting for clearance or a truck route that bleeds money on every stretch.
These structural limitations are now colliding with a global moment that leaves India even more exposed. The dollar has been on a relentless upward climb as the U.S. maintains tight monetary policy to battle inflation. Almost every major currency — from the Japanese yen to the Chinese yuan — has weakened significantly this year. India is not an outlier in this global context. But the domestic layer of vulnerability is uniquely Indian. FPI outflows have crossed $16.4 billion in 2025, and investor appetite has grown more fickle in the face of tariff noise, political uncertainty in Washington, and questions around India’s fiscal intentions.
Even gold has returned to being a silent saboteur, with imports surging and threatening to pad the trade deficit by billions. When the deficit widens, dollar demand spikes.When dollar demand spikes, the rupee slides further. None of this is new, but the vulnerability has worsened because the export engine — the thing that should be cushioning these blows — is misfiring.
It would be tempting to attribute the rupee’s fall to panic, mismanagement or political incompetence, and the opposition has certainly reached for the easiest of lines. As the currency dipped last week, critics resurfaced decade-old videos of Narendra Modi mocking the UPA for letting the rupee fall. The political theatre is predictable, but the economic realities today are fundamentally different from 2013. India now has stronger reserves, more diversified trade partners, better macro buffers, and higher domestic growth.
Yet, paradoxically, it has far weaker export responsiveness.
The Reserve Bank of India stepped in aggressively last week to slow the slide — selling dollars in the onshore market and the non-deliverable forward segment, signalling its discomfort with a rapid breach of the 88.80 level. The intervention managed to stop the worst of the panic, stabilising the rupee around 89.16 by the next session. But short-term firefighting cannot mask the deeper problem. India can defend its currency for a few days or a few weeks, but it cannot defend its manufacturing inefficiencies forever.
A weaker rupee doesn’t automatically boost exports because in India’s current configuration, depreciation acts less like a competitive boost and more like a cost shock. Production becomes more expensive. Imported components — everything from circuit boards to speciality chemicals to capital machinery — become pricier. Exporters who rely on global supply chains find their margins eroded before their goods even reach the port. Depreciation in a modern, import-intensive economy is not the bargain-bin advantage it once was.
Worse, a sliding rupee injects imported inflation into the system. When inflation rises, monetary easing becomes impossible. When rate cuts are off the table, borrowing remains expensive. When borrowing is expensive, firms hesitate to expand capacity. And when firms hesitate, exports stagnate. This is the cycle India is stuck in — a loop where every attempted remedy creates the next problem.
So, if depreciation won’t save India’s exports, what will?
There are glimmers of sensible reform that could shift the trajectory if pursued with seriousness. The recent rollback of some QCOs, especially those that affected industrial inputs with no strategic significance, is an overdue acknowledgment that regulatory overreach has hurt competitiveness. The GST Council’s movement toward rate rationalisation could begin to relieve the compression on working capital, especially for small exporters. And pending labour reforms, if executed with clarity instead of bureaucratic hedging, could finally reduce the compliance thicket that discourages scale.
But these are still early steps, not a transformation. India needs three things urgently if it wants depreciation to matter again.
First, it needs a dramatic reduction in input tariffs. Without affordable raw materials and intermediates, Indian exporters will always fight with one hand tied behind their back.
Second, it needs predictability in the regulatory ecosystem — not the kind that shifts every month with a new import restriction or standard, but a long-term, stable regime that gives exporters confidence to plan five years ahead, not five weeks.
Third, it needs an aggressive reduction of logistics costs and inland frictions, from customs modernisation to digital documentation to multimodal transport investments that reduce the time-cost of moving goods.
Until these structural reforms take hold, India will continue living in the illusion that the rupee can fix what regulations have broken.
A rupee at 90 is not a crisis by itself. Many countries have currencies far weaker than their historical norms and yet post robust exports. What makes India’s situation alarming is that the rupee is weakening without delivering export competitiveness. That is not a currency problem; that is a system failure.
Unless India confronts that failure head-on — dismantling the high-cost ecosystem that neutralises every advantage depreciation should offer — the country will remain stuck in a peculiar trap: a falling rupee that helps almost no one, rising costs that hurt almost everyone, and an export engine that sputters no matter what the currency does.
The rupee’s slide should have been an opportunity. Instead, it has become a mirror — showing us, with uncomfortable clarity, that the problem isn’t the exchange rate at all. The problem is everything behind it. (IPA Service)
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