Indian Rupee Nears 92 Against Dollar as Budget Fails to Calm Market Jitters

The Indian rupee is hovering near the significant level of 92 against the US dollar, a point that has investors and analysts on high alert. This weakness follows the recent Union Budget and confirms fears that were previously outlined in the government’s own Economic Survey. Market experts are now pricing in the potential for more currency slump in the coming months, as global headwinds intensify.

Economic Survey Warnings Become Reality

The government’s Economic Survey, released a day before the Budget, had explicitly flagged major risks from the external sector. It pointed to volatile foreign capital flows and a tightening of global financial conditions as key threats to India’s economic stability. Analysts note that the Budget, while focused on growth, did not introduce measures strong enough to counter these specific external risks. Consequently, the concerns highlighted in the survey are now playing out visibly in the currency markets.

The rupee’s decline is not happening in isolation. It reflects a broader shift in the global investment landscape. The US Federal Reserve is on a path to raise interest rates and wind down its pandemic-era support, a process known as tapering. This makes dollar-denominated assets more attractive to global investors, pulling capital out of emerging markets like India. When foreign investors sell Indian stocks and bonds, they convert rupees back into dollars, increasing the supply of rupees and driving its value down.

Why the Budget Could Not Shield the Rupee

The Union Budget for 2022-23 was domestically focused, with large allocations for public capital expenditure to stimulate growth. However, it did not alter the fundamental equation for foreign investors. The fiscal deficit target, while improved, remains high. Combined with rising global oil prices, this stokes fears of imported inflation and could limit the Reserve Bank of India’s ability to keep interest rates low to support the economy.

For currency traders, this creates a dilemma. Higher inflation might force the RBI to raise rates later, but for now, the interest rate difference between India and the US is expected to shrink as the Fed acts faster. This reduces the ‘carry trade’ appeal of holding rupee assets. Furthermore, a widening trade deficit, as imports grow faster than exports, also naturally pressures the rupee’s exchange rate.

What a Weaker Rupee Means for Investors

A rupee near 92 against the dollar, and potentially sliding further, has mixed implications. For the broader economy, a weaker currency makes imports like crude oil, electronics, and chemicals more expensive. This feeds directly into higher domestic inflation, eroding consumer purchasing power and corporate margins. Companies with large foreign currency debt will also see their repayment burdens increase.

On the positive side, a depreciated rupee makes Indian exports more competitive in global markets. Sectors like information technology (IT), pharmaceuticals, and textiles, which earn significant revenue in dollars, stand to benefit as their rupee earnings increase when converted from foreign currency. For equity investors, this makes export-oriented companies relatively more attractive in the current environment.

Analysts are advising investors to watch the twin deficits—fiscal and trade—along with the pace of foreign portfolio investment flows. The RBI may intervene in the currency market to prevent a disorderly fall, but it is unlikely to defend any specific level aggressively. The consensus is that the rupee will face continued pressure, and its movement will be a critical indicator of how India navigates the coming period of global financial tightening.