📰The Rupee Crisis | Daily India Briefing

Today, we break down one of the largest downward slides the rupee has seen in decades.

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Macro

• CPI inched up to 0.71 percent y-o-y, with food and vegetable prices still down 3.91 percent and 22 percent respectively. This is still far below the RBI target of 4 percent; the bank expects inflation to average 2.9 percent in 1Q26. The rupee’s slide has led to the RBI remaining unsure of rate cut guidance. 

• Gold and silver ETFs are now allowed as permitted investments.$1.7 billion (₹153 billion) worth of demand could be created from the move since National Pension Systems can invest up to 1 percent of their assets in the space.

Equities

• ICICI Prudential AMC is starting its $1.2 billion (₹108 billion) IPO order process. The listing implies it to be worth $11.8 billion (₹1.1 trillion), making it India’s 2nd largest mutual fund. Brokerages are bullish on the deal due to a conservative valuation and strong financial metrics. 

• Banks want to double the cap on merger financing from 10 to 20 percent of a bank's core capital.The goal is to become more competitive in the Indian M&A space; up until this year, banks were not even able to provide financing for India’s own companies due to restrictions.

Alts

• A 100 percent foreign direct investment is now allowed in the insurance sector. The current limit at 74 percent was deemed too low due to limited coverage and capital inflows. Removing the FDI cap should attract more expertise and investment to boost insurance coverage from 1 percent of GDP to closer to the global average of 4.2 percent. 

• A rebounding tiger population has led to luxury safari travel booming. The population in India rebounded from 1,300 to 4,000, making up over ⅔ of the global tiger population. 

• Sumitomo is investing $1.3 billion (₹117 billion) into Indian renewables projects.The funds are being invested through a JV with AMPIN Energy Transition to develop 2 GW of energy by 2028.

Policy

• Modi and Trump's 4th call continues to spur hope for a trade deal. Modi said the call was warm and that both leaders reviewed progress in their bilateral relations while discussing regional and international developments. 

• The Trump-Modi call leaves speculation on a trade deal with key points being agriculture and tech. Trade officials on both the US and India side said talks were progressing smoothly, however Trump did threaten tariffs on rice. Agriculture, GMOs in particular, is a sticking point while the boom in tech deals implies that a deal is on the way.

• India's $815 million (₹73.4 billion) plan for rare-earth minerals will likely fail.India will likely struggle to move from discovery to production since making usable products from mined rare-earth minerals requires sophisticated know-how which China dominates. Industry groups echo the point and agree that India will still have to rely on trade partners and imports for now.

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The RBI’s Challenge with the Rupee

Currency volatility never repeats itself perfectly, but the current slide in the Indian rupee has clear echoes of 2013. Back then, panic followed the Federal Reserve’s plans to taper quantitative easing (buying different securities to ease the economy by introducing cash). Today the Fed is easing, yet the rupee is still Asia’s worst performer, down about 5 percent against a falling dollar. A decade ago, India was battling runaway inflation and an unsustainable current account deficit. Now domestic inflation is nearly nonexistent, and even a record trade gap in October has not generated the same alarm about India’s external financing.

The rupee’s slump is now happening due to a completely different factor, especially relative to the rest of Asia. India’s landscape is fundamentally stronger. Exports are under strain from US tariffs of 50 percent on labor-intensive sectors like textiles, but services trade remains resilient. Outsourcing firms are challenged by artificial intelligence and US immigration policy, yet global companies are building AI hubs in India to tap its young, technical workforce. The structural picture looks healthier, so the rupee’s slump requires a different explanation.

One factor is the unresolved trade deal with Washington. Without a compromise in the 15 to 20 percent tariff range that the US has offered Southeast Asia, a weaker rupee is helping preserve competitiveness. Equity sentiment is another drag. Foreign investors have sold roughly $17 billion (₹1.5 trillion) this year, unconvinced that earnings can justify high valuations in an economy where nominal GDP growth is no longer reliably in double digits. Their attention has shifted to AI, and Indian markets offer little exposure to that theme.

History also rhymes through gold. In 2013, households poured into bullion to escape the rupee’s decline. This time it is soaring global gold prices, amplified by the Fed’s latest rate cut, that are fueling imports, tightening external balances just as foreign capital departs. Crypto now competes with gold as a vehicle for expressing dissatisfaction with the currency. The deeper challenge lies in India’s monetary stance. In 2012, the RBI cut rates too aggressively relative to the Fed. Today real borrowing costs are among the highest in years, squeezing firms and keeping investors cautious. The central bank has also built large short positions in the forward market, and any move to unwind them could weaken the rupee further. Traders are already circling 100 as a politically sensitive level. 

The RBI’s test in 2013 came from the Fed. The test in 2026 may come from Washington’s shifting signals on trade: Trump in the last few days has threatened tariffs on rice while saying tariffs on India should be cut.

See you tomorrow.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

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