Living with a weaker rupee

IF you are travelling abroad right now, the falling rupee does not feel like an abstract economic phenomenon. It feels personal. Hotel bills suddenly look steeper, a simple meal costs more than expected, and the daily habit of converting prices into rupees becomes an exercise in mild despair. When the exchange rate hits record lows, it is not economists or central bankers who feel the first pinch, it is ordinary Indians overseas. Yet the rupee’s decline is not the result of a single bad decision or sudden economic mishap. It is the outcome of several global and domestic forces converging at the same time. Understanding those forces does not make travel cheaper, but it does explain why this is happening and why quick fixes are unlikely.

The most important factor lies outside India. Over the past year, the US dollar has remained unusually strong. This strength is driven largely by the United States Federal Reserve keeping interest rates higher for longer than markets had expected. When interest rates rise in the world’s largest economy, global capital tends to flow towards dollar assets, especially US government bonds, which offer relatively high returns with low risk.

As money flows into the dollar, other currencies weaken by comparison. Emerging market currencies are typically the first to feel the pressure, and the rupee is no exception. This is not a uniquely Indian story. Many Asian and emerging market currencies have struggled in the same period. What makes the rupee’s fall more noticeable is that it has continued even during moments when the dollar itself has softened. That tells us that global forces alone do not explain what is happening. India-specific factors are amplifying the pressure. One such factor is growing uncertainty around trade. India’s trade negotiations with the United States have reached a prolonged deadlock. Clarity on a deal is now expected only months down the line. In the meantime, steep US tariffs on certain Indian goods have hurt exports to India’s largest overseas market.

Exports matter for the currency because they bring dollars into the country. When exports slow, dollar inflows weaken. At the same time, India’s demand for dollars remains strong because of its import needs. The country imports more than 80 per cent of the crude oil it consumes, along with large quantities of electronics, machinery and industrial inputs. These imports are paid for in dollars, increasing demand for foreign currency.

Oil deserves special attention because its impact is felt widely and quickly. When oil prices rise or when the rupee weakens, fuel becomes more expensive at home. That feeds into transport costs, airline fares and logistics expenses. For travellers, it shows up in higher ticket prices and steeper costs for getting around abroad. For the economy, it widens the trade deficit and adds further pressure on the rupee. Another important piece of the puzzle is foreign investment. Over the past year, overseas investors have steadily pulled money out of Indian equities and bonds. This has not happened in a rush, but through consistent, near-constant outflows. Such movements may not make headlines every day, but their cumulative impact on the currency is significant.

Foreign investors evaluate returns in dollar terms. Even if Indian stock markets perform reasonably well in rupees, a weakening currency erodes those returns when converted back into dollars. Combined with trade uncertainty and global risk aversion, this makes emerging markets less attractive in the short term. Each dollar that leaves Indian markets adds to downward pressure on the rupee.

Many people wonder why the Reserve Bank of India does not step in more forcefully to stop the fall. The answer lies in how modern exchange rate regimes work. India does not operate a fixed exchange rate. The RBI’s mandate is to prevent excessive volatility, not to defend a specific rupee level.

Intervening aggressively to prop up the rupee would mean selling large amounts of foreign exchange reserves. While India’s reserves remain substantial, they are not limitless. Using them to maintain an artificial exchange rate would be costly and ultimately counterproductive. Instead, the RBI has chosen to intervene selectively, smoothing sharp movements while allowing the broader trend to play out.

This explains why the rupee’s decline has been gradual rather than dramatic. From a policy perspective, slow adjustment is preferable to sudden devaluation. From a traveller’s perspective, however, gradual decline still hurts, because each small move lower translates into higher daily expenses.

There is also a deeper structural issue at work. India’s growth model is inherently import intensive. Infrastructure expansion, manufacturing ambitions and energy transition efforts all rely heavily on imported inputs. These investments are essential for long-term growth, but they create sustained demand for foreign currency in the short to medium term.

Exports, meanwhile, have not expanded fast enough to consistently offset this demand. Services exports, particularly in IT and business services, provide an important buffer. But goods exports remain vulnerable to global slowdowns, protectionism and competitiveness constraints. Until this imbalance is addressed, the rupee will remain sensitive to external shocks.

It is important to be clear about what this situation is not. This is not a currency crisis. India has experienced genuine crises in the past, marked by collapsing reserves and abrupt policy responses. Today’s conditions are very different. Foreign exchange reserves are ample, external debt is manageable and the exchange rate is flexible.

What travellers are experiencing is adjustment, not collapse. That distinction matters because it shapes expectations. There is no dramatic policy lever that will suddenly strengthen the rupee and rescue overseas budgets. Even positive developments, such as progress on trade talks, may offer only temporary relief. The RBI could use any rebound to rebuild reserves, limiting how far the rupee strengthens. For individuals, the implications are practical rather than ideological. Travellers need to budget more conservatively, lock in exchange rates where possible and accept that overseas spending power has diminished for now. Students and families with foreign expenses will feel similar pressure.

For policymakers, the lesson is longer term. A stable currency depends on export competitiveness, diversified trade partnerships, energy security and credible macroeconomic management. These are slow, structural fixes rather than quick interventions.

The rupee’s fall may feel unfair to someone paying an inflated hotel bill in a foreign city. But currencies do not move to accommodate travel plans. They move in response to trade flows, capital movements and global financial conditions.

Understanding that does not make the bill smaller. It does, however, make the moment less mysterious. The rupee is doing what flexible currencies are designed to do, adjusting to economic reality. For individuals abroad, that reality is inconvenient. For the economy, it is a signal worth paying attention to calmly rather than emotionally.

The author writes on economics and governance, with a focus on how policy choices affect everyday life.