The Indian rupee has declined sharply in 2025, breaking through the important ₹90 per US dollar mark for the first time. This drop has happened due to a mix of domestic and global pressures. The rupee has fallen over 5% this year, even with strong GDP growth of 8.2% in Q2 and inflation easing below 1%. Despite these solid fundamentals, outside factors have overwhelmed the currency, raising worries about India’s economic stability. The rupee is under significant pressure, hitting historic lows against the US dollar. This situation has raised concerns among policymakers, businesses, and citizens. The rupee’s decline shows a complicated mix of domestic economic issues and global financial trends that have changed India’s monetary landscape.
Key Causes
A strong US dollar, driven by delayed Federal Reserve rate cuts and high real yields, has put pressure on emerging market currencies like the rupee. US-India trade tensions increased with higher tariffs on Indian exports, with some reaching 50%. This has disrupted negotiations and shaken investor confidence. Foreign portfolio investors (FPIs) pulled out $17 billion from Indian stocks in 2025, along with slowed capital inflows and record imports of gold, metals, oil, and electronics due to ongoing trade deficits.
RBI Response
The Reserve Bank of India (RBI) has moved to a “crawl-like” exchange rate system as classified by the IMF. This change has reduced aggressive actions compared to previous years when it sold $55.8 billion in late 2024 and early 2025. Interventions resumed in August 2025, with $36.3 billion offloaded by November. However, a softer approach has allowed the market to drive depreciation. Geopolitical uncertainties and strong domestic dollar demand for importers have limited the RBI’s effectiveness.
Economic Impacts
Higher import costs, especially for crude oil and gold, raise inflation risks and increase the current account deficit, squeezing corporate profits. Households are facing higher prices for imported goods, electronics, and fuel. Exporters benefit from increased competitiveness but face higher input costs. Over the last decade, the rupee’s 30% loss against the dollar highlights structural issues, including higher inflation in India and Fed rate hikes that pull capital away.
The Trajectory of Decline
The rupee’s decline has been steady, especially during global uncertainty. In the late 2010s, it traded at around 70-75 rupees per dollar. Since then, it has weakened significantly, breaking through the important 80-rupee mark and continuing downward. Each new low raises fresh discussions about India’s economic fundamentals and its role in the global financial system.
How will Rupee at 90 affect inflation and imports
The rupee crossing ₹90 per US dollar significantly raises import costs, contributing to imported inflation that pressures households and businesses dependent on foreign goods. This depreciation of over 5% in 2025 adds to the challenges from India’s heavy reliance on imports of crude oil, gold, electronics, and raw materials.
Impact on Imports
Imports become more expensive as it takes more rupees to buy the same amount of dollar-denominated goods. This widens the trade deficit and squeezes importer profits. Crude oil, which makes up a large portion of imports, raises fuel and transportation costs. Electronics, medicines, and machinery see immediate price increases that affect MSMEs and consumers. While exporters benefit from cheaper competitiveness abroad, many rely on these more expensive inputs, offsetting gains through natural hedging.
Effects on Inflation
A weaker rupee drives up imported inflation by passing higher input costs to consumers, especially for essentials like petrol, food, and imported components in daily products. This hits the poor and middle class the hardest, reducing demand and increasing living costs. There are risks of broader consumer price index (CPI) inflation despite easing domestically. Corporate profits face pressure from unhedged foreign debt and rising raw material costs, which could slow growth unless offset by RBI actions or trade agreements.
The Inflation Transmission Mechanism
The connection between rupee depreciation and inflation happens through several channels. The most direct is through energy prices. India imports about 85% of its crude oil needs. When the rupee weakens, fuel prices rise even if global crude prices stay the same. Increases in diesel and petrol prices lead to higher transportation costs for goods, raising expenses for farmers and pushing prices up in many sectors.
Imported food items and edible oils also become more expensive. India imports large volumes of palm oil, pulses, and other food products. Rising prices for these items add to food inflation, which has a significant impact on India’s consumer price index and affects household budgets.
Which sectors will see biggest price rises from import costs
The rupee at ₹90 per dollar sharply increases costs for sectors that heavily rely on dollar-denominated imports, passing on higher prices to consumers and businesses. The energy, metals, electronics, and pharmaceuticals sectors will see the most immediate and significant price increases due to India’s reliance on imports.
Energy Sector
Crude oil imports, which provide over 85% of India’s energy, drive up petrol, diesel, and electricity prices as refiners pass on the extra ₹10-15 per dollar depreciation. This raises transportation and manufacturing costs across the economy, with potential petrol price hikes of ₹5-7 per liter.
Metals and Manufacturing
Primary metals like steel, aluminum, and alloys face import cost increases of 10-12%, inflating construction, auto, and infrastructure projects where imports make up 30-40% of demand. The fabricated metals and machinery sectors experience compounded pressures, squeezing MSME profits and raising end-product prices by 5-8%.
Electronics and Consumer Goods
Electronics imports, such as phones and components from China and other countries, surge in cost by 8-10%. This hits consumer goods and IT hardware the hardest, likely raising retail prices by 7-12%. Gold and jewelry also add to festive season price pressures due to increased raw material costs.
Pharmaceuticals
API and bulk drug imports, with 70% coming from China, lead to medicine price increases of 6-9%. This affects both generics and formulations despite government price controls on essentials. This situation strains healthcare affordability amid ongoing supply chain issues.
SOLUTION
The rupee’s drop to ₹90 per dollar arises from factors like trade deficits, FPI outflows, high import demand, and global dollar strength. Targeted policy measures can help prevent further declines by addressing these root causes, boosting inflows, and reducing vulnerabilities. Stabilizing the currency requires coordinated fiscal, monetary, and trade actions without aggressive interventions that deplete reserves.
Boost Exports
Quickly negotiate US-India trade deals to address tariff increases up to 50%, improving export competitiveness in textiles, IT services, and pharmaceuticals. Promote non-oil exports through incentives like duty drawbacks and PLI schemes, aiming for 15-20% export growth to narrow the trade deficit.
Curb Imports
Implement temporary restrictions on non-essential imports like gold, which has surged 200% in 2025, and electronics through higher duties or quotas. Accelerate domestic crude refining and renewable energy to reduce oil import reliance from 85%. Direct gold into sovereign bonds to minimize physical demand.
Attract Capital Inflows
The RBI can modestly raise policy rates to improve yield differentials, attracting FPIs amid $17 billion outflows. Easing FDI norms in key sectors can also help. Issue more sovereign green bonds and appeal to the diaspora for remittances with incentives to offset weak FDI.
Fiscal and RBI Measures
Aim to keep the fiscal deficit below 4.5% of GDP by rationalizing subsidies, allowing the RBI to maintain a “crawl-like” system with smooth interventions using remaining reserves. Build forex buffers through swap agreements with global central banks for short-term stability.
CONCLUSION
The rupee at ₹90 raises import costs and inflation, impacting energy, metals, electronics, and pharmaceuticals the most. While RBI interventions provide some relief, solutions related to trade are crucial. Upcoming price hikes should be expected. The rupee’s breach of ₹90 signals structural weaknesses that require immediate action. Although global challenges and domestic factors drive this decline, India’s strong fundamentals—such as 8.2% GDP growth and sub-1% inflation—offer a basis for recovery. Stabilization will need a multi-faceted approach that includes resolving US trade disputes to boost exports, limiting non-essential imports like gold, and attracting capital through careful rate adjustments and eased FDI rules. The RBI’s market-driven strategy must be balanced with tactful interventions during volatile times, while maintaining fiscal discipline below a 4.5% deficit to support confidence. The rupee at ₹90 serves as a warning, not a crisis. Through prompt, coordinated policy actions on trade, capital flows, and fiscal management, India can stabilize its currency and foster a stronger, export-driven economy. Inaction could result in lasting inflation and diminished confidence, while proactive measures offer the chance for lasting strength in the external sector. India’s currency future is still in its own hands.
Author Name- Honey Jain, Designation: 3rd Year Law Student, Institution: Maharaja Sayajirao University Baroda
