By the final weeks of 2025, the Indian rupee had crossed a symbolic threshold that few economists thought possible even a year earlier: ₹90 to one US dollar. For the first time in its history, the currency recorded its worst annual performance among major global currencies, depreciating more than 5 per cent against the dollar in a single calendar year. Markets now openly discuss the possibility of the rupee touching ₹100 within the next twelve to eighteen months. This is no longer a gradual, managed decline; many analysts describe the movement as the rupee in free fall.
What Does “Crashing” Actually Mean in Currency Terms?
In everyday language, “crashing” suggests sudden, dramatic collapse—like a car crash or a computer programme freezing. In foreign-exchange markets, however, a “crashing rupee” or “rupee crash” simply means a rapid and largely uninterrupted depreciation over a short period. Unlike an equity-market crash, which can happen in minutes, currency crashes usually unfold over weeks or months, but the speed and scale still feel shocking to citizens and policymakers alike.
The 2025 episode is remarkable because the depreciation has been both steep and broad-based: the rupee has weakened not only against a strengthening US dollar but also against the euro, pound sterling, Japanese yen, and even many emerging-market peers. In technical terms, India’s currency became Asia’s worst-performing major unit and one of the weakest globally in 2025.
Why Is the Indian Rupee Crashing Against the Dollar in 2025?
Several powerful forces have combined to push the rupee lower:
1. Resurgent US Dollar Strength
After Donald Trump’s re-election and the announcement of reciprocal tariffs and “America First” trade policies, global capital flowed back into US assets. Higher expected US interest rates and a risk-off environment strengthened the dollar index (DXY) by more than 7 per cent in the second half of 2025.
2. Persistent Current-Account Pressure
India’s merchandise trade deficit widened sharply because of high commodity prices (especially energy and edible oils) and festive-season gold imports that exceeded US$17 billion in October–November alone. A larger import bill directly increases demand for dollars.
3. Foreign Portfolio Outflows
Foreign institutional investors pulled out approximately US$17–20 billion from Indian equities and debt in 2025, the highest annual exodus since the COVID-19 panic of 2020.
4. Domestic Industrial Slowdown
The Index of Industrial Production (IIP) growth collapsed to just 0.4 per cent in October 2025, signalling that manufacturing—the sector most likely to generate export revenue—is stagnating. Weak export growth removes a natural source of dollar inflows.
5. Uncertainty over US–India Trade Relations
The threat of 10–60 per cent reciprocal tariffs on Indian exports (textiles, pharmaceuticals, IT services, etc.) has kept investors nervous and delayed long-term capital commitments.
Together, these factors have overwhelmed the Reserve Bank of India’s (RBI) efforts to stabilise the currency. Despite selling an estimated US$30–35 billion from its forex reserves in 2024–25, the central bank has only managed to slow—not reverse—the decline.
Has the Rupee Really Been in “Free Fall”?
Strictly speaking, the RBI has continued to intervene and the market remains orderly. Yet from a psychological and economic-impact perspective, the phrase “rupee in free fall” is understandable: the currency has lost more than 35 per cent of its value against the dollar since early 2014 (from ≈₹60 to over ₹90), and the pace has accelerated sharply in 2025.
The Three Common Narratives—and Why They Are Only Partly True
When any currency weakens significantly, three standard explanations usually emerge from official and media circles. In 2025 India, these have been repeated frequently:
1. “It’s good for exports”
Theory: A cheaper rupee makes Indian goods and services more competitive abroad.
Reality: While true in textbooks, India’s export basket is heavily import-dependent (electronics, pharmaceuticals, engineering goods, textiles). Higher import costs for raw materials and components often wipe out the competitive gain. Merchandise exports actually contracted 12 per cent year-on-year in October 2025, and India’s share of global merchandise exports remains stuck below 2 per cent despite more than a decade of rupee depreciation.
2. “The rupee isn’t weak; the dollar is too strong”
This was the official line offered by the Finance Ministry for much of 2025.
Reality: Although the dollar has indeed strengthened, the rupee has underperformed almost every major and emerging-market currency. By December 2025 it was Asia’s worst performer and among the bottom five globally. Blaming only the dollar no longer holds.
3. “A managed gradual depreciation is normal”
Historical average: 3–4 per cent per annum.
2025 reality: More than 5 per cent in a single year, with intra-year swings far higher than the historical norm. The scale has moved beyond “managed”.
The Direct Impact on Households and Businesses
The consequences of a crashing rupee are immediate and broad:
- Higher import costs: India imports roughly US$650–700 billion worth of goods annually (crude oil, coal, edible oils, electronics, gold, pharmaceuticals APIs, etc.). A 5 per cent depreciation mechanically adds roughly ₹3–3.5 lakh crore to the nation’s import bill.
- Fuel and transport inflation: Petrol and diesel prices, though partially insulated by excise-duty cuts, will still rise, pushing up transportation and food costs.
- Overseas education and travel: Studying in the US, UK, Canada, or Australia now costs 15–25 per cent more in rupee terms than it did two years ago. A ₹25-lakh annual fee has become ₹30–32 lakh almost overnight.
- Electronics and consumer durables: Mobile phones, laptops, and white goods that rely on imported components have seen price increases or delayed discounts.
- Corporate margins: Companies with unhedged dollar debt or heavy import needs (airlines, refineries, fertiliser units) face balance-sheet stress.
The GDP Growth Conundrum
India reported 8.2 per cent real GDP growth for the July–September 2025 quarter, prompting celebrations. Yet several independent economists have raised concerns:
- Extremely low inflation (0.25 per cent retail CPI in October) artificially inflates real GDP figures because real GDP = nominal GDP minus inflation. When inflation is near zero, real growth looks higher than the underlying economic momentum.
- Growth remains highly skewed toward capital-intensive sectors (banking, IT services, refineries) while labour-intensive sectors (agriculture, textiles, construction) lag. Rural wage growth is anaemic, and agricultural growth is stuck around 3.5 per cent despite a good monsoon.
A sustained rise in inflation—almost inevitable once the rupee-induced imported price pressures feed through—will automatically lower reported real GDP growth in coming quarters even if nominal activity remains decent.
What Can Policymakers Do?
The RBI faces a difficult trilemma: defending the rupee drains reserves, allowing further depreciation fuels inflation, and cutting interest rates to boost growth risks even larger capital outflows. Most analysts expect the central bank to continue “managed float with a bias toward smoothing” while hoping for:
- An early US–India mini trade deal that removes tariff uncertainty.
- Revival in foreign direct investment (FDI), which has been remarkably resilient compared with portfolio flows.
- Faster export diversification into services and high-value manufacturing.
Looking Ahead: ₹100 on the Horizon?
Currency forecasts are notoriously difficult, but a combination of high US rates, potential US tariffs, and India’s structural dependence on imported energy and commodities makes further weakness probable. Many international banks now carry base-case forecasts of ₹94–96 by March 2026 and ₹98–102 by the end of the next fiscal year.
The crashing Indian rupee in late 2025 is far more than a statistical curiosity or a headline number. It is a mirror reflecting deeper challenges: persistent trade imbalances, slowing manufacturing, heavy reliance on imported energy, and vulnerability to global risk sentiment. While a weaker currency can, in theory, help exporters, India’s economic structure limits those benefits and amplifies the costs for ordinary citizens.
Understanding why the Indian rupee is falling—and why it keeps falling despite repeated official reassurances—is essential for anyone trying to make sense of India’s growth story as it enters its next phase. The road from ₹90 to potentially ₹100 will test not just the resilience of the currency but the credibility of the broader economic narrative that has dominated the past decade.
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