NEW DELHI, India — The depreciation of the Indian rupee during the current 2025–26 financial year has been influenced by a widening trade deficit and evolving developments around India’s trade agreement with the United States, along with relatively weak support from capital inflows, the government informed Parliament on Tuesday.
The rupee crossed the 90-per-dollar mark earlier this month, breaching a historic psychological level against the U.S. currency.
“Various domestic and global factors influence the exchange rate of the Indian rupee, such as the movement of the Dollar Index, trend in capital flows, level of interest rates, movement in crude prices and current account deficit, etc,” Minister of State for Finance Pankaj Chaudhary said in a written reply to the Rajya Sabha.
Chaudhary noted that while currency depreciation can create challenges, it may also improve export competitiveness and have a positive impact on the economy. “On the other hand, depreciation may raise the prices of imported goods. However, the overall impact of exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market,” he said.
He added that import behavior is influenced by several factors beyond exchange rates, including global demand and supply conditions, the nature of traded goods such as essential or luxury items, freight costs, and the availability of substitutes. As a result, the effect of currency movements on import costs, domestic inflation, and the broader economy cannot be viewed in isolation.
The minister emphasized that the value of the rupee is market-determined and that there is no fixed target level or trading band. He said the Reserve Bank of India closely monitors the foreign exchange market and intervenes only to address excessive volatility.
According to Chaudhary, the central bank tracks a wide range of global developments that can affect the dollar-rupee exchange rate. These include monetary policy actions by major central banks, key economic data releases worldwide, OPEC+ decisions, geopolitical events, and daily movements in G-10 and emerging market currencies.
On foreign investment, the minister said the government has adopted an investor-friendly foreign direct investment policy to attract more capital inflows. Most sectors, excluding a few strategically sensitive areas, now allow 100 percent FDI under the automatic route, with more than 90 percent of inflows coming through this channel.
“The government is continuously working towards attracting FDI into the country by removing regulatory barriers, streamlining processes, developing infrastructure, bettering logistics and improving the business environment by enhancing the ease of doing business,” Chaudhary said. (Source: IANS)
