The Indian rupee crossed 96 to the dollar in May 2026. Newspaper front pages turned apocalyptic. The opposition grew loud. And the perennial question resurfaced: is this a crisis, or is the currency simply finding a truer price after years of artificial comfort?
The answer is both. And the failure to hold both truths simultaneously is exactly where most commentary goes wrong.
The immediate cause is not India’s doing. The US-Iran conflict that erupted in late February 2026 shut the Strait of Hormuz, sent Brent crude near $100 a barrel and sparked a global flight to dollar safety. For a country that imports over 85% of its crude oil, the consequences were direct and cascading – a larger import bill, wider trade deficit, rupee under pressure. The currency has shed roughly 6% since the conflict began, making this the sharpest sustained depreciation episode in at least a decade.
But geopolitics is the match, not the kindling. The kindling was already there.
India’s merchandise trade deficit was already on course to cross $300 billion in 2025-26, its widest ever. Foreign portfolio investors had been quietly exiting Indian equities and bonds through much of 2025. When the conflict gave them a reason to accelerate, they did – pulling over $24 billion from Indian markets between March and May 2026 at a pace not seen since the COVID shock. The rupee was not a fortress that an exogenous shock cracked open. It was a structure with pre-existing fault lines that the conflict merely exposed.
This distinction is not academic. Blaming geopolitics entirely lets us off the hook for reforms we have repeatedly deferred.
That said, panic is not analysis. There are real reasons for measured confidence.
India’s foreign exchange reserves remain substantial, and the Reserve Bank of India has intervened not to arrest the slide entirely, but to prevent the disorderly, cliff-edge collapse that destroys confidence overnight. That is the correct posture. A managed depreciation and a currency rout are not the same thing, and conflating them serves no one.
The inflationary pass-through from a weaker rupee is also more contained than popular imagination suggests. India’s CPI is structurally driven by domestic food prices – we grow most of what we eat. A 5% depreciation in the rupee typically adds only 15 to 25 basis points to headline inflation. That is not negligible, but it is not the catastrophe it is made out to be.
And a weaker rupee does have genuine beneficiaries: the IT sector billing in dollars, pharmaceutical exporters, the diaspora sending remittances home. These effects are real and should be acknowledged honestly.
But here is what should not be allowed to slide into complacency: this episode has exposed, with uncomfortable clarity, how much India’s external sector remains hostage to two vulnerabilities it has done little to reduce.
The first is oil. Despite years of rhetoric about energy self-sufficiency and the renewable transition, a conflict India did not cause and cannot resolve has the power to destabilise its currency, inflate its fiscal deficit, and erode the purchasing power of its middle class. That is not an acceptable structural condition for a country with $5 trillion ambitions. Accelerating the domestic energy transition is not an environmental aspiration – it is a hard-nosed national security requirement.
The second is the depth of its capital markets. The rupee’s sensitivity to FPI exits reflects a financial system that has not yet built the long-term institutional ownership base needed to cushion external shocks. When global risk appetite contracts, India is treated as an emerging market first and a growth story second. Deepening corporate bond markets, attracting patient capital, and reducing the structural dominance of hot money – these reforms have been discussed for a decade. The cost of not doing them is now visible in the exchange rate.
Final Thought
The rupee at 96 is neither the end of the world nor a number to be shrugged at. It is a signal. India’s external vulnerabilities – long acknowledged, long deferred – have come due. The correct response is not panic, and it is not the practised nonchalance of those who benefit quietly from a weaker currency. It is the structural seriousness that this moment demands and that, for too long, this country has mistaken for having already shown.
Chakrivardhan Kuppala is the co-founder & Executive Director, Prime Wealth Finserv Pvt. Ltd.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
