‘But Japan’s yen also fell...’: Finfluencer explains why Re slide is a bigger problem for India

Wisdom Hatch founder Akshat Shrivastava takes on the defence around the rupee’s plunge: Japan's Yen also fell, so what's the big deal?. 

While the Indian rupee (INR) hit an all-time low of 87.29 against the US dollar, Shrivastava pointed out that Japan’s yen has depreciated by 37% over the past five years. But the comparison, he says, misses the bigger issue.

“The big deal is: Japan typically runs a trade surplus. Not a consistent trade deficit like India,” he explained. A weaker rupee makes imports—especially crude oil—costlier, widening India’s trade deficit and increasing inflationary pressures.

Several global and domestic factors have driven the rupee’s depreciation. On the global front, the US Dollar Index surged 6.5% since October 2024, driven by strong US job data and expectations of delayed Fed rate cuts. Geopolitical risks, including tensions in the Middle East and disruptions in the Red Sea, further pushed investors toward safe-haven assets like the USD. Adding to the pressure, Trump’s new tariffs on imports from China, Mexico, and Canada sparked fresh trade war fears, boosting the dollar’s strength.

Domestically, India’s merchandise trade deficit widened to $75.3 billion in Q2 FY25, compared to $64.5 billion a year ago. Foreign investors pulled $950 million from Indian equities in Q4 2024, adding to the outflow of dollars. Meanwhile, the RBI eased its market intervention, allowing the rupee to align with broader economic forces rather than aggressively defending its value with forex reserves.

A falling rupee translates to higher costs for imports, particularly crude oil, electronics, and chemicals, leading to imported inflation. Companies with USD-denominated loans also face increased debt repayment burdens. While some sectors—such as IT, textiles, and pharmaceuticals—benefit from a weaker currency by gaining global competitiveness, Shrivastava highlights a key concern:

“Falling currency is not really a problem if our exports (% of GDP) are going up. But it’s not.”

With India’s export-to-GDP ratio stagnating, the currency depreciation becomes more problematic. The government and RBI are responding with forex interventions, higher interest rates on NRI deposits, and policy shifts to reduce USD dependency. Long-term strategies include promoting rupee trade settlements, accelerating bond index inclusion, and offering tax incentives for exports.

Analysts predict the rupee could slide further to 88–90/USD by mid-2025 if global headwinds persist. The RBI is expected to balance growth with stability, with a 25 bps rate cut anticipated in April 2025