Given the popularity of the Prime Minister and people realizing the gravity of the problem, if we are able to reduce the outgo of foreign exchange by even 10 percent, by reducing these imports and restraining ourselves, we can save nearly 30 billion US dollars, and help saving the value of rupee. — Dr. Ashwani Mahajan
Although, Indian rupee has been depreciating since long, but recent decline in value of rupee in a very short span of two and a half months of ongoing war between US, Israel and Iran, is a cause of major concern for policy makers. Though, not directly referring to the fall in value of Indian rupee, but it’s anybody’s guess that when on May 10, 2026, the Prime Minister appealed to the nation to conserve petrol and diesel by minimizing unnecessary petrol diesel run vehicles’ usage, curtailing foreign travel, working from home, and conducting meetings online; it was actually appeal to the citizens to protect Indian rupee via conserving foreign exchange. In this context, Prime Minister’s appeal to the citizens for avoiding buying of gold, reduce consumption of cooking oil, avoid buying foreign brand goods and use Swadeshi products, reduce use of chemical fertilisers and move towards natural farming, are all aimed at reducing dependence on foreign countries and save valuable foreign exchange. It’s important to note that during this period of Gulf war, India’s foreign exchange reserves have depleted by 38 billion US dollars, and our reserves have declined from 728.5 billion on February 27th to US dollars to 690.7 billion US dollars by May 12, 2026.
Generally speaking, there are two views about the stability of the Rupee. One set of people believe that exchange-rate is nothing but a market determined variable; and one should not worry, even if currency depreciates, as imports and exports will adjust automatically to the exchange rate. They are of the view that depreciation of domestic currency may discourage imports, while exports are encouraged at the same time. About Indian rupee, sometimes they believe that it is overvalued and therefore if RBI intervenes to stem any decline in rupee, it would hurt the economy, as the same would encourage imports and discourage exports.
Second set of people believe in strong rupee. They feel that only a strong rupee can help controlling inflation, keep foreign exchange outgo, due to debt services (repayment of Principal and interest), dividends, royalty, salaries and other income transfers under check. Prime Minister Narendra Modi before taking over the rein of power, has been arguing that misdirected policies of the previous government have been responsible for decline in rupee and therefore a right set of policies can only help stop depreciation of rupee.
Though, value of rupee has always been a matter for discussion, we need to understand that howsoever strong a government is, it cannot artificially determine the exchange rate and help it appreciate. Exchange rate is determined by the forces of demand and supply of foreign currencies (say dollars), while demand for foreign exchange comes from imports of goods and services, debt servicing (repayment of principal and interest on the loans raised in the past), income transfers on account of dividends, royalty, technical fee, salaries and other income transfers, foreign exchange comes from exports of goods and services, net inflow of foreign direct investment (FDI), and foreign portfolio investment receipts from abroad etc. If the government wishes for a strong rupee, it cannot achieve the same artificially by administratively determining the exchange rate. No doubt sometimes RBI does engage in market interventions and try to curb short-term volatility in rupee by increasing supply of foreign exchange in the market, but this has only a limited impact in the long run if rupee depreciates due to chronic deficit in the balance of payment on current account (CAD). Any attempt by RBI, to keep the value of rupee intact, artificially, It has to inject more and more dollars from its kitty of foreign exchange reserves. Therefore, there is a danger that foreign exchange reserves may deplete if RBI continues to interfere in the foreign exchange market. Therefore, we need to correct the basic factors responsible for this deficit, in order to improve the value of rupee.
Considering the value of rupee India, in recent years, we note that value of rupee had remained relatively stable between April 1, 2024 and 31st March 2025, and depreciated by hardly 2.3 percent. during this period, but since April 1, 2025 till date the rupee has depreciated by 11.7 percent in little more than a year. Major depreciation during this period happened since the advent of war from February 27th, 2026, till May 13, 2026. Rupee has depreciated significantly, by 4.4 percent from 91.1 per US dollar to rupees 95.5 in a short span of two and a half months. This has caused major worry to people at large and policy makers in particular. We understand that the basic cause of fall in the value of rupee, is the rising prices of crude oil, which is ballooning balance of trade deficit, and Foreign Portfolio Investors selling spree in stick markets. Though, we expect that rupee will stabilise once war recedes, but the long-term solution to the problem of rupee can be found by correcting the balance of payment of the country. First component of the balance of payment comes from balance of merchandise trade. We see that over the years, there has been a significant tendency towards rising imports of merchandise and sluggish exports overtime. But during the year 2025-26, the imports witnessed a sudden spurt, while exports almost stagnated, resulting in balance of trade of merchandise increased by 50 billion US dollars, and jumped from US$ 283.5 billion in 2024-25 to 333.2 billion US$ in 2025-26. Though, this huge increase in deficit was partially offset by an increased surplus in invisibles’ trade, by $25 billion from US$188.8 billion in 2024-25 to 213.9 billion US$ in 2025-26. If we try to scan the major items of merchandise imports by India, they include petroleum products, gold, edible oils, chemical fertilizers etc. Another major component of foreign exchange outflow is foreign travels by Indians. Continuous and fast rise in merchandise imports and stagnated merchandise exports, is an alarm bell for the economy in general and value of rupee in particular. Demand for foreign exchange due to foreign travel and Indian students going abroad for studies has also been increasing in the recent years.
It is estimated that in 2025-26 crude oil imports bill is expected to be nearly 135 billion US dollars; expected outgo of foreign exchange on gold imports, chemical fertilizers and edible oil bill is expected to be 72 billion US dollars, 14 to 18 billion US dollars and 19 billion US dollars respectively. Foreign exchange spending by Indian travelers going abroad and Indian students going for studying abroad is costing nearly 30-35 billion US dollars and 15-20 billion US dollars respectively.
We can very well understand that the Prime Minister‘s appeal to the citizens to reduce the consumption of petrol and diesel by using public transport and also using electric vehicles; shun buying of gold, postpone foreign visit by at least one year, reduce consumption of cooking oil and move towards natural farming avoiding chemical fertilizers, is a sane advise to help save our valuable foreign exchange and protect rupee from further depreciation.
Given the gravity of the problem of constantly declining rupee due to global conflicts, disturbed value chain and danger of depletion of our foreign exchange reserves, nation has to act fast, rising above the narrow political narratives, to safeguard the interest of the country. Given the popularity of the Prime Minister and people realizing the gravity of the problem, if we are able to reduce the outgo of foreign exchange by even 10 percent, by reducing these imports and restraining ourselves, we can save nearly 30 billion US dollars, and help saving the value of rupee.
