Why a weakening rupee may further delay India's $5-trillion economy dream
India's macroeconomic fundamentals are coming under pressure as Brent crude trades above $100 per barrel and transport and insurance costs rise sharply because of the ongoing West Asia conflict
- May 12, 2026,
- Updated May 12, 2026 3:53 PM IST
India's weakening rupee and surging crude oil prices could further delay the country's march towards becoming a $5-trillion economy, according to a new SBI Research paper released on May 11.
The report comes as the rupee hit a fresh record low of 95.63 against the US dollar on Tuesday amid fears of prolonged disruption in the Strait of Hormuz and rising global crude prices.
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SBI Research warned that India's macroeconomic fundamentals are coming under pressure as Brent crude trades above $100 per barrel and transport and insurance costs rise sharply because of the ongoing West Asia conflict.
"With the country’s macro fundamentals getting distorted as Brent crude prices hover above $100, transport and insurance costs spike arbitrarily, there is a felt need to put in place measures that alleviate the BoP position," the report said.
The report flagged the direct impact of rupee depreciation on India’s economy size in dollar terms. "Our regression results indicate that for each Rs depreciation, there will be a 20 to 25 bps degrowth in Nominal GDP in dollar terms ($48-59 bn knocking off based on underlying GDP base figures)," SBI Research said.
The report estimated that if the rupee weakens to 95 against the US dollar, India's economy size could fall to around $4.04 trillion. In that scenario, the country may achieve the $5-trillion milestone only by FY30.
"We have estimated India's economy size in 3 scenarios. If the $/INR rate at Rs 95, then the economy size will fall to $4.04 trillion, and the dream to be $ 5 trillion economy may be achieved in the year FY30," the report said.
Don't Miss: 'Get ready for tough times': Uday Kotak's warning as Iran conflict impacts India, triggers WFH warning
India's GDP target has already seen shifting timelines over the past year.
The International Monetary Fund had earlier projected that India would become a $5-trillion economy by FY28. However, later IMF estimates suggested the target may slip to FY29.
Under the revised projections cited in late 2025 reports, India was expected to reach around $4.96 trillion in FY28, narrowly missing the $5-trillion mark. The weakening rupee has now added fresh uncertainty to those projections.
The rupee depreciated 35 paise to an all-time low of 95.63 against the US dollar in early trade on Tuesday. On Monday, the currency had already slumped 79 paise to close at a record low of 95.28.
The fall followed renewed fears over the Iran conflict after US President Donald Trump said the ceasefire with Iran was on "massive life support", dimming hopes of an immediate peace deal and pushing crude oil prices higher.
SBI Research said higher oil prices could significantly hurt India's external balances, inflation and growth. "Our model estimated that for every ~$10 per bbl increase in crude oil prices may widen the CAD by 35 bps, inflation by 35-40 bps and 20-25 bps in GDP," the report said.
The report projected India's GDP growth at around 6.6 per cent in FY27 if crude prices average near $100 per barrel.
Chief Economic Advisor V Anantha Nageswaran had also cautioned earlier this year that exchange rate movements and GDP base revisions could delay India’s climb up the global economic rankings.
According to a Parliamentary panel report tabled in March, Nageswaran said India would remain the world's fifth-largest economy in FY27. "Japan‘s economy is estimated to be at $4.4 trillion by the end of December 2025. Hence, we will have a gap of at least $500 dollar compared to Japan. Therefore, becoming the fourth largest economy in 2026- 2027 is not going to be easy," he told the panel.
Nageswaran also said India’s nominal GDP estimates were revised lower after the base year was changed from 2011-12 to 2022-23. "We initially expected ₹357.1 lakh crore as of March 2026. The new revisions may leave us with ₹345.4 lakh crore," he said. The revised estimates, combined with rupee depreciation, kept India's economy size near $3.9 trillion as of March 2026, according to the CEA.
India's weakening rupee and surging crude oil prices could further delay the country's march towards becoming a $5-trillion economy, according to a new SBI Research paper released on May 11.
The report comes as the rupee hit a fresh record low of 95.63 against the US dollar on Tuesday amid fears of prolonged disruption in the Strait of Hormuz and rising global crude prices.
Don't Miss: BT Explainer | US-Iran ceasefire on 'life support': Why India's economy is under pressure
SBI Research warned that India's macroeconomic fundamentals are coming under pressure as Brent crude trades above $100 per barrel and transport and insurance costs rise sharply because of the ongoing West Asia conflict.
"With the country’s macro fundamentals getting distorted as Brent crude prices hover above $100, transport and insurance costs spike arbitrarily, there is a felt need to put in place measures that alleviate the BoP position," the report said.
The report flagged the direct impact of rupee depreciation on India’s economy size in dollar terms. "Our regression results indicate that for each Rs depreciation, there will be a 20 to 25 bps degrowth in Nominal GDP in dollar terms ($48-59 bn knocking off based on underlying GDP base figures)," SBI Research said.
The report estimated that if the rupee weakens to 95 against the US dollar, India's economy size could fall to around $4.04 trillion. In that scenario, the country may achieve the $5-trillion milestone only by FY30.
"We have estimated India's economy size in 3 scenarios. If the $/INR rate at Rs 95, then the economy size will fall to $4.04 trillion, and the dream to be $ 5 trillion economy may be achieved in the year FY30," the report said.
Don't Miss: 'Get ready for tough times': Uday Kotak's warning as Iran conflict impacts India, triggers WFH warning
India's GDP target has already seen shifting timelines over the past year.
The International Monetary Fund had earlier projected that India would become a $5-trillion economy by FY28. However, later IMF estimates suggested the target may slip to FY29.
Under the revised projections cited in late 2025 reports, India was expected to reach around $4.96 trillion in FY28, narrowly missing the $5-trillion mark. The weakening rupee has now added fresh uncertainty to those projections.
The rupee depreciated 35 paise to an all-time low of 95.63 against the US dollar in early trade on Tuesday. On Monday, the currency had already slumped 79 paise to close at a record low of 95.28.
The fall followed renewed fears over the Iran conflict after US President Donald Trump said the ceasefire with Iran was on "massive life support", dimming hopes of an immediate peace deal and pushing crude oil prices higher.
SBI Research said higher oil prices could significantly hurt India's external balances, inflation and growth. "Our model estimated that for every ~$10 per bbl increase in crude oil prices may widen the CAD by 35 bps, inflation by 35-40 bps and 20-25 bps in GDP," the report said.
The report projected India's GDP growth at around 6.6 per cent in FY27 if crude prices average near $100 per barrel.
Chief Economic Advisor V Anantha Nageswaran had also cautioned earlier this year that exchange rate movements and GDP base revisions could delay India’s climb up the global economic rankings.
According to a Parliamentary panel report tabled in March, Nageswaran said India would remain the world's fifth-largest economy in FY27. "Japan‘s economy is estimated to be at $4.4 trillion by the end of December 2025. Hence, we will have a gap of at least $500 dollar compared to Japan. Therefore, becoming the fourth largest economy in 2026- 2027 is not going to be easy," he told the panel.
Nageswaran also said India’s nominal GDP estimates were revised lower after the base year was changed from 2011-12 to 2022-23. "We initially expected ₹357.1 lakh crore as of March 2026. The new revisions may leave us with ₹345.4 lakh crore," he said. The revised estimates, combined with rupee depreciation, kept India's economy size near $3.9 trillion as of March 2026, according to the CEA.