There's a silver lining to the falling rupee

Rupee weakened to a record low on Thursday.

India's rupee weakened past the 90-a-dollar mark as foreign flows dry up and the uncertainty over the India-US trade deal continues. The Indian currency hit a new record low on Thursday closing at 90.33 to a dollar extending the year's fall by more than 5% and becoming the worst performing currency in Asia.

India trade deficit expanded in the month of October as exports were pressured and imports went up mostly due to costly precious metals. A weakening rupee will further make India's import bill swell as it depends heavily on crude oil shipments from abroad to meet its energy needs. Higher imports push demand for dollars up further putting pressure on the rupee.

As the exporters grapple with heightened uncertainties in the global trade dynamics, the falling rupee may come as sigh of relief as it makes India's exports more competitive. As the rupee slides, the exports get cheaper in dollar terms. It particularly benefits IT exports as they bill their clients in dollars.

“Having a weaker rupee at this point is not a major problem, as it benefits the export sector given global uncertainties,” India's Chief Economic Advisor Nageswaran told Bloomberg in an interview.

The steep 50% US tariffs on India's exports serves as a dampener for one of the key drivers of India's economic growth. India has set an ambitious target of reaching $1 trillion of merchandise exports by 2030.

India–US goods trade crossed $128 billion while services stood at an estimated $212.3 billion in FY24, according to US Trade Representative's office.

Labour-intensive sectors like textiles and shrimp exports have taken a hit due to the steep tariffs. US President Trump recently threatened to put additional tariffs on India's rice exports further adding to the woes.

The RBI Governor, in the recently held post-policy press conference, said the US tariffs on India's exports have had a minimal impact as India's economy is mostly domestic-demand driven and that it should be seen as an opportunity not only to increase productivity but also to diversify our exports.

India's growth forecast for the current fiscal has been revised upwards to 7.3% by the RBI on the back of a strong second quarter registering a robust 8.2% GDP growth.