Rupee hits record low - causes and cautions

The Indian rupee’s slump beyond the psychologically-significant ₹90 mark per US dollar a record low is sending shockwaves across households, businesses and markets. On December 3 2025 the currency breached the 90-rupee barrier, part of a slide that has seen its value drop more than 5 percent year-to-date.

At first glance, this appears to be a domestic crisis but the roots of the current rupee crisis run deep into global macroeconomic trends and structural imbalances.

The most immediate culprit is the sustained strength of the US Dollar (USD). The US economy remains relatively resilient, and the Federal Reserve (Fed) has kept interest rates high, prompting global investors to shift funds toward US-dollar assets. That has triggered substantial capital outflows from India, depriving its financial markets of foreign exchange inflows and weakening the rupee.

Compounding that are domestic and structural headwinds. India continues to import far more than it exports: crude oil, electronics, gold and machinery dominate the import basket. As the country buys more in dollars, the demand for foreign currency exceeds supply, widening the current-account deficit and increasing pressure on INR.

Meanwhile, foreign direct investment (FDI) and foreign portfolio investments (FPI) have slowed or reversed. This year alone, foreign investors withdrew nearly US$ 17 billion from Indian equities, and net FDI flows turned negative at times. The foreign exchange supply crunch, in turn, has made rupee-demand acute.

On top of that, global headwinds such as steep tariffs on Indian exports notably by the United States have weakened export competitiveness and dampened confidence in Indian assets.

Domestic inflation and cost pressures further erode the rupee’s real exchange value. The rising cost of imports whether crude oil or electronic components feeds into general inflation and reduces purchasing power, making savers and investors balk at rupee-denominated assets.

The consequences of this rupee depreciation are mixed, but increasingly painful for ordinary citizens. For consumers, everyday goods from fuel to imported electronics, medicines, machinery and luxury items just got costlier. Higher import costs tend to feed into inflation, squeezing household budgets. Corporations reliant on imported raw materials face rising input costs, while firms indebted in foreign currency may see increased repayment burdens.

On the flip side, certain segments stand to gain. Export-oriented industries especially those earning in dollars, like IT services and software see their earnings magnified in rupee terms, which can improve margins and make Indian exports more competitive globally. Similarly, Indian households receiving remittances from abroad benefit as foreign currency converts to more rupees.

But for most of the economy, unchecked rupee depreciation is a destabiliser. Persistent inflation, higher cost of living, possible rise in interest rates, weakening investor confidence and stress on balance sheets of import-reliant companies all combine into a toxic cycle.

What, then, can be done to arrest this slide and stabilise the rupee without undermining overall economic growth?

First, the country needs to reduce its structural dependence on imports, especially oil and high-value electronics. Investment in alternative energy, boosting domestic manufacturing, improving supply-chain resilience and incentivising import substitution would reduce dollar demand.

Second, the state must attract and retain foreign capital through policies that instill investor confidence: consistent reforms, regulatory clarity, ease of doing business, encouraging FDI, supporting export-oriented sectors, and creating conditions that make long-term investments attractive.

Third, the central bank, the Reserve Bank of India (RBI) should continue to deploy its foreign-exchange toolkit smartly: intervening in forex markets when necessary, using swaps and hedges to smooth volatility, and maintaining adequate foreign-exchange reserves to defend against speculative attacks. But at the same time, it should guard against over-dependence on reserves by combining intervention with structural reforms.

Fourth, fiscal discipline remains vital. Government borrowing should be controlled; excessive fiscal deficit and expansionary spending could add to inflation and capital outflow pressures. Reducing budget deficits and avoiding excessive foreign-denominated borrowing would help.

Finally, India must work to deepen exports through competitiveness both in traditional goods and digital services while entering trade agreements that open up new markets. Lowering tariffs, signing trade pacts, ensuring supply-chain linkages, and streamlining export logistics can improve forex inflows.

In sum, the rupee’s slide to ₹90 per dollar is not just a one-time market event it reflects deeper global vulnerabilities and domestic structural imbalances. While some sectors may profit, the broader economy and common citizens pay the price.

Stabilising the rupee will demand a coordinated and sustained effort: macroeconomic prudence, structural reforms, export push, import-substitution, and prudent forex-market management. Anything short of such a holistic strategy will only delay not prevent the next leg of depreciation. The question now is not just how we respond. It is whether we are prepared to change the underlying fabric of our economy so that the rupee is not put forever on the defensive.