Why the Indian rupees is falling in 2025

Why the Indian Rupee Is Falling in 2025 — Full Explanation
Despite India’s strong domestic fundamentals — GDP growth above 7%, inflation under control, record forex reserves of ~$700 billion — the Indian Rupee has depreciated sharply in 2025. The INR has lost ~3–6% against the US Dollar and even more against the Euro, Pound, and Yen.
This depreciation is not a reflection of domestic weakness, but a result of global capital flows, trade headwinds, and policy shifts.
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1. Capital Outflows — The Biggest Driver
Historically, India receives strong foreign capital inflows, adding 2–2.5% of GDP annually.
But in 2025:
• Net capital inflow was just $2.25 billion (0.1% of GDP).
• FDI collapsed from $40–45 bn (FY20–22) to nearly $1 bn in FY25.
• FPI sold $16–17 billion worth of stocks in 2025 alone.
Capital outflows reduce the supply of dollars in India → rupee weakens.
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2. Rising Trade Deficit
Higher imports of:
• crude oil
• gold
• electronics
Combined with weak global demand for Indian goods → higher demand for USD → rupee depreciation.
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3. Stronger US Dollar & High US Yields
The US Federal Reserve kept interest rates “higher for longer”.
So foreign investors shift money into US bonds → out of emerging markets → INR falls.
This interest-rate differential is the biggest global pressure on the rupee.
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4. Geopolitical Tensions & US–India Trade Issues
• Trump-era trade reset
• US imposing 50% tariffs on some Indian goods
• H1B visa restrictions & HIRE Act uncertainty
All these reduced investor confidence and hurt exports → INR pressure.
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5. RBI’s “Controlled Flexibility” Strategy
RBI is deliberately not defending the rupee aggressively.
Why?
Because INR was overvalued (REER 108), hurting exports.
Now RBI is:
• intervening only to prevent volatility
• allowing gradual depreciation
• strengthening forex reserves for future shocks
This “crawl-like” depreciation is part of a long-term stability plan.
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6. Market Valuation Correction
The rupee had stayed artificially strong for years due to heavy intervention.
Now it is correcting to reflect market reality.
Analysts say INR is even undervalued by 4% now (REER basis).
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Impact on the Indian Economy & You
Negative Impact
• Imported inflation: oil, electronics, machinery cost more
• Higher travel & overseas education cost
• Businesses dependent on imports face higher expenses
• Fuel-led inflation may delay RBI rate cuts
Positive Impact
• Exporters (IT, pharma, textiles) earn more in USD
• NRIs sending money home benefit
• Some sectors see improved global competitiveness