Why is rupee falling? Economic Survey explains slide, sees silver lining in depreciation

Finance Minister Nirmala Sitharaman on Thursday tabled the Economic Survey in the Lok Sabha ahead of the Union Budget.

The pre-budget document reviews India’s economic performance and outlines short- and medium-term prospects for 2025–26.

The Survey comes at a time when the Indian rupee is facing renewed pressure in the currency markets.

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Rupee slips below 92 against dollar

The Indian rupee weakened further on Thursday and slipped below the 92 mark against the US dollar. It touched an intraday low of 92.1260. The currency extended losses after failing to sustain gains from the previous sessions.

The dollar index traded steady after the US Federal Reserve’s policy meeting outcome. The index settled slightly higher at 96.19, with a gain of 0.02 per cent on Wednesday.

Meanwhile, the USD-INR February 25 futures contract settled at 92.0300 on the National Stock Exchange. It ended the session with a gain of 0.18 per cent.

Strong growth but currency undervalued

The Economic Survey said the Indian rupee underperformed in 2025 despite strong domestic fundamentals.

India continues to run a trade deficit in goods. Its surplus in services exports and remittances is not sufficient to fully offset this gap.

As a result, India depends on foreign capital inflows to maintain balance of payments stability. When these inflows weaken, rupee stability becomes a casualty.

The Survey highlighted that India’s macroeconomic position remains strong. Growth is robust and the outlook remains favourable.

Inflation is contained. Rainfall trends and agricultural prospects are supportive.

It added that external liabilities are low and banks remain healthy.

• Liquidity conditions are comfortable.
• Credit growth is respectable.
• Corporate balance sheets are strong.
• Overall fund flows to the commercial sector are robust.

According to the economic survey, the rupee’s valuation does not reflect India’s strong economic fundamentals.

It said the rupee is “punching below its weight”.

Investor caution a concern

The Survey noted that an undervalued rupee offers some advantages.

It helps soften the impact of higher US tariffs on Indian goods.

It also does not pose an inflation risk at present, as crude oil import prices remain manageable.

However, it warned that currency weakness can make investors pause.

The survey said investor reluctance to commit capital to India needs closer examination.

Global paradox and policy challenge

The Economic Survey pointed to a key paradox in 2025. India is witnessing one of its strongest macroeconomic performances in decades. At the same time, the global system no longer rewards macro stability with currency strength or steady capital inflows.

India is relatively better placed than many other countries. It benefits from a large domestic market, strong foreign exchange reserves, a less financialised growth model and credible strategic autonomy.

These factors provide buffers in an environment marked by financial volatility and persistent geopolitical uncertainty.

Need to boost forex earnings

The Survey cautioned that global turbulence may not be limited to one year. It could be a more enduring feature.

In response, India needs to generate stronger investor interest and higher export earnings in foreign currency. This is essential to meet a rising import bill, as higher incomes typically lead to higher imports. The document noted that this has been the historical global experience.

Economic Survey

The Economic Survey is prepared by the Economic Division of the Department of Economic Affairs in the Ministry of Finance.

It is formulated under the supervision of the Chief Economic Adviser. The document provides insights into key economic indicators for 2025–26 and an outlook for the next financial year.