The Indian Rupee is teetering near Rs 91 against the U.S. dollar and could slide further to Rs 95 in 2025, according to M&A investment banker and former CFO Sarthak Ahuja.
The shift, he says, stems from structural changes in how the Reserve Bank of India (RBI) manages the currency and mounting external pressures.
To understand the drop, Ahuja points to India's unique hybrid exchange rate model: A mix of fixed and floating regimes. Unlike countries that peg their currency (like the UAE) or let markets freely determine exchange rates (like the U.S. or EU), India traditionally walks a middle path, with the RBI intervening to curb sharp fluctuations.
“When the RBI senses a possible fall in the rupee, it sells dollars into the market to boost supply and support the currency,” Ahuja explained.
“But this year, that model is evolving.”
Under the new Governor, the central bank appears less willing to deplete its forex reserves for currency defense. That policy shift is coming at a time of sustained dollar outflows.
Ahuja cites three drivers behind the rupee's fall:
FII Outflows: “Over the past 2–3 years, U.S. markets have delivered exceptional returns,” he said. “That's prompted foreign institutional investors to pull out over $16 billion from India in 2024 alone.”
Weak Exports: India's recent struggle to export to the U.S. has further choked dollar inflows, worsening the supply-demand gap.
High Imports: Simultaneously, India continues to import gold and oil at high levels, burning through existing dollar reserves.
These factors combined have pushed the RBI toward a more hands-off approach, allowing the rupee to slide over 4% this year, toward a more market-driven floating rate. The impact is not uniformly beneficial. While a weaker rupee helps some exporters, “it mainly benefits agri exporters who source inputs domestically,” Ahuja noted. “Sectors like electronics, pharma, and machinery import raw materials, so their costs rise—negating any forex gain.”
Ahuja forecasts a cautious outlook: stock markets may stagnate or dip unless corporate earnings improve enough to re-attract foreign capital. A resolution to the U.S. tariff situation could ease some pressure, but structurally, India may be heading toward a freer exchange rate regime.
