The Economic Survey 2026, tabled by Finance Minister Nirmala Sitharaman in the Parliament on Thursday, took cognisance of the weakness in the Indian rupee but remains unperturbed by its decline amid the high tariff world.
The Indian rupee breached the 92 per US dollar mark earlier today and settled the day near an all-time low at 91.96 as persistent selloff by foreign portfolio investors (FPIs) and risk-off sentiment weighed on the domestic unit.
The Survey noted that between April 1, 2025, and January 22, 2026, the Indian rupee depreciated by approximately 6.5% against the US dollar. It has also underperformed most major currencies last year.
The weakness in the rupee, as per the Economic Survey, was underpinned by drying foreign capital flows. “India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty,” it noted.
The BOP deficit, coupled with market uncertainty over the outcome of a trade deal with the US, has also exerted pressure on the Indian rupee.
Rupee punching below its weight
However, the Survey stated that the Indian rupee’s valuation doesn’t accurately capture its “stellar economic fundamentals”.
India’s growth outlook remains favourable, with inflation under control and rainfall and agricultural prospects supportive. Furthermore, external liabilities are low, stated the Economic Survey. The government projects the Indian economy to grow at 6.8%-7.2% in FY27, supported by strong macro fundamentals and a series of regulatory reforms.
The rupee, it said, therefore is punching below its weight. However, the Survey stated that it does not hurt to have an undervalued rupee in these times, as it offsets to some extent the impact of higher American tariffs on Indian goods, and there is no threat of higher inflation from higher-priced crude oil imports now.
A lower rupee makes Indian exports more competitive, especially in the light of a 50% tariffs imposed by the US.
Over the medium to long term, exchange rate dynamics are expected to be guided by structural fundamentals, such as productivity gains, export diversification towards higher-value goods and services, deeper integration into GVCs and a stable policy environment rather than short-term fluctuations, the Economic Survey stated.
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