In 2025, the Indian rupee emerged as one of the worst-performing currencies in Asia, declining by around 5 percent over the year. The downward trend has continued into the current year, raising serious concerns for the world’s most populous nation.
Whenever economic indicators weaken, Prime Minister Narendra Modi often introduces new promotional narratives to highlight growth prospects. Recently, he referred to India’s economic phase as a “Goldilocks moment.” However, the current reality presents a different picture, with the steady depreciation of the rupee becoming a major concern that cannot be masked by rhetoric.
Since January 1, the rupee has lost an additional 5.5 percent of its value. Economists point out that India’s high current account deficit is putting sustained pressure on the currency, increasing the risk of further depreciation. Some global analysts warn that if geopolitical tensions, particularly involving Iran, persist, the rupee could weaken toward 100 per U.S. dollar.
Market observers suggest that the possibility of the rupee reaching 100 per dollar is no longer just speculative. Current government measures appear to provide short-term relief rather than addressing deeper structural issues within the economy.
The Reserve Bank of India (RBI) has been actively trying to stabilize the currency by limiting foreign exchange positions and intervening in the market. Despite these efforts, results have been limited so far. Currency traders continue to bet against the rupee, and the central bank has struggled to counter the trend effectively.
Meanwhile, global oil prices have remained elevated, with Brent crude staying above $100 for an extended period. This has significantly increased India’s import costs, as the country is the world’s third-largest oil importer. Rising energy prices are adding substantial pressure to the economy, with the monthly oil import bill increasing by billions of dollars.
Analysts believe that as long as oil prices remain high, the rupee will continue to face downward pressure. This situation could also pose political challenges for the ruling Bharatiya Janata Party (BJP) in the near future.
To support the currency, the RBI has been selling large amounts of U.S. dollars in the market. In 2025 alone, it reportedly sold a record amount exceeding $50 billion. While these interventions have ensured short-term liquidity, their long-term sustainability depends heavily on global oil prices and geopolitical developments.
The impact of these policies is also visible in the banking sector, where major institutions have experienced declines in stock prices. This reflects growing uncertainty within the financial system.
India’s population of over 1.4 billion is expected to feel the full impact of rising fuel costs. The situation is further complicated by instability in the Strait of Hormuz, a critical global oil transit route. Any disruption in this region could severely affect India’s energy supply and economic stability.
Government officials maintain that India’s foreign exchange reserves remain sufficient to cover several months of imports. However, analysts caution that prolonged geopolitical tensions and high energy prices could still lead to significant economic strain.
International rating agencies have identified India as one of the countries most vulnerable to rising fuel costs and supply disruptions due to its heavy dependence on energy imports.
Adding to the challenges, forecasts indicate that much of India could experience above-normal temperatures and heatwaves in the coming months. This would increase demand for cooling and energy consumption, further intensifying economic pressure.
Experts also argue that the current crisis is not solely driven by external factors such as war or oil prices. Structural weaknesses in the economy, built up over the past decade, are also contributing to the problem. Even before recent geopolitical tensions, India’s trade deficit was already high and is now expected to widen further.
Since coming to power in 2014, the Modi government has introduced several economic initiatives, including efforts to attract foreign investment and boost manufacturing under the “Make in India” campaign. While some global companies have established operations in the country, the manufacturing sector’s contribution to GDP has not reached the intended targets.
Despite relatively strong GDP growth rates of 7–8 percent, the benefits have not been evenly distributed among the population. Job creation has also fallen short of expectations, highlighting deeper structural issues in the economy.
Although India is progressing toward becoming a larger economy in terms of GDP size, per capita income remains significantly lower compared to developed nations. This indicates that economic expansion alone does not necessarily translate into improved living standards for citizens.
Overall, analysts suggest that unless India adopts more sustainable and inclusive growth policies, pressure on the rupee will persist. Despite strong political messaging around a “New India,” the underlying economic realities continue to present significant challenges and uncertainties.
How the Iran War is Pushing India into a Currency Crisis
