Indian Rupee Hits Historic Low Against US Dollar: Economic Survey Points to Geopolitical Factors
The Indian rupee has emerged as the worst-performing Asian currency in 2025, and its struggles have continued into 2026 with the currency hitting a lifetime low of 92 against the US dollar. This significant depreciation has raised questions about underlying economic issues and the factors driving this downward trend.
Economic Survey 2025-2026 Reveals Key Drivers of Rupee's Decline
The Economic Survey 2025-2026, tabled in Parliament by Finance Minister Nirmala Sitharaman ahead of the Union Budget speech, provides crucial insights into the rupee's depreciation. According to the survey, the Indian currency has become a casualty of drying foreign inflows amid complex geopolitical dynamics.
The document states: "The Indian rupee underperformed in 2025. India runs a trade deficit in goods. Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty."
Specific Factors Contributing to Currency Weakness
The Economic Survey identifies several specific factors that have exerted pressure on the Indian rupee:
- Widened Balance of Payments deficit
- Market uncertainty surrounding the outcome of a trade deal with the United States
- Geopolitical tensions affecting global trade patterns
- Strategic power gap identified by international indices
Between April 1, 2025, and January 22, 2026, the Indian rupee has depreciated by approximately 6.5% against the US dollar. However, the survey notes that this movement has been orderly and controlled.
Contrast Between Rupee Performance and Economic Fundamentals
Interestingly, the Economic Survey highlights a significant disconnect between the rupee's valuation and India's strong economic fundamentals. The document points out that:
- Economic growth remains robust with a favorable outlook
- Inflation is well-contained within target ranges
- Agricultural prospects are supported by good rainfall patterns
- External liabilities remain at manageable levels
- Banking sector health has improved significantly
- Corporate balance sheets show considerable strength
- Credit growth continues at respectable rates
"Policy dynamism and purposeful governance reinforce this backdrop. The rupee's valuation does not accurately reflect India's stellar economic fundamentals," the survey emphasizes, suggesting that the currency is punching below its weight in international markets.
Strategic Power Gap and Global Challenges
The Economic Survey cites the Australia-based Lowy Institute's Power Gap Index, which indicates that India is operating below its full strategic potential. With a power gap score of -4.0, India ranks lowest in Asia (excluding Russia and North Korea), highlighting the need for strategic enhancement.
The survey notes: "India is a country of 145 crore people aspiring to become a richer country within a generation, within a democratic framework. India's size and democracy preclude the possibility of templates worthy of emulation. With the global dominant power rethinking its economic and other commitments and priorities, throwing global trade into a welter of uncertainty and global frictions mounting and faultlines widening, India's economic ambitions are confronting powerful global headwinds."
Silver Linings and Future Outlook
The Economic Survey identifies some potential benefits from the rupee's current undervaluation:
- It partially offsets the impact of higher American tariffs on Indian goods
- There is no immediate threat of higher inflation from costlier crude oil imports
However, the survey acknowledges that investor reluctance remains a concern that warrants examination. Looking forward, the document suggests that exchange rate dynamics in the medium to long term will be guided by structural fundamentals rather than short-term fluctuations.
Key factors expected to influence future currency movements include:
- Productivity gains across sectors
- Export diversification toward higher-value goods and services
- Deeper integration into Global Value Chains (GVCs)
- Maintenance of a stable policy environment
The Economic Survey concludes with a call to action, suggesting that the same global forces currently creating headwinds could be transformed into tailwinds if the State, private sector, and households align their efforts and commit to the scale of transformation required. While acknowledging that this task will be neither simple nor comfortable, the survey emphasizes that it is unavoidable for India to achieve its economic ambitions in the current global landscape.
