'Rupee’s valuation does not accurately reflect stellar economic fundamentals': Economic Survey 2025-26

The Economic Survey 2025–26 on Thursday said the rupee’s valuation does not accurately reflect India’s strong economic fundamentals, even as the currency slid to an all-time low against the US dollar amid persistent weakness in foreign capital inflows and heightened corporate hedging activity.

The sharp depreciation came despite a buoyant domestic economy, with external pressures overwhelming supportive internal factors. The Survey noted that the rupee’s underperformance in 2025 was driven more by global uncertainty and capital flow dynamics than by any deterioration in India’s macroeconomic health.

“The Indian rupee underperformed in 2025. India runs a trade deficit in goods, and its net surplus in services and remittances is not sufficient to offset it. As India depends on foreign capital inflows to maintain a healthy balance of payments, rupee stability becomes a casualty when these flows weaken,” the Survey said.

"Of course, 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. However, it does cause investors to pause," the survey document said.

On Thursday, the Indian rupee slid to a record low of 91.99 against the US dollar breaching its previous record low of 91.96 touched last week. The currency is down about 2% so far this year and has weakened nearly 5% since US President Donald Trump imposed steep tariffs on India’s merchandise exports to its largest market.

The Economic Survey noted that India’s foreign exchange reserves provide a comfortable liquidity buffer, covering more than 11 months of imports as of January 16, 2026, and nearly 94% of external debt outstanding at the end of September 2025.

Chief Economic Adviser V. Anantha Nageswaran said India must generate adequate investor interest and foreign-currency export earnings to finance its rising import bill, noting that higher imports inevitably accompany rising incomes, irrespective of indigenisation efforts.

"India needs to generate sufficient investor interest and export earnings in foreign currency to cover its rising import bill, as, regardless of the success of indigenisation efforts, rising imports will invariably accompany rising incomes," the CEA noted.

The survey highlighted the strategic diversification of India’s export destinations away from the United States through new trade agreements with the UK, the European Union, New Zealand and Oman. However, he cautioned that recent restrictions on Indian immigrants could weigh on remittance inflows to India.

The Survey further said inflation is expected to edge up gradually in the coming financial year but remain within the Reserve Bank of India’s target range. Soft global commodity prices, easing food inflation and the pass-through from a weaker rupee are likely to shape the inflation outlook, even as prices of metals, particularly gold, silver and copper, remain firm, according to official projections and multilateral assessments.