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Rupee Underperforms: India's Investment Puzzle
30 Jan
Summary
- Rupee depreciated over 6.5% against the US dollar this financial year.
- Foreign investment inflows are tepid, impacting the balance of payments.
- Strong economic fundamentals contradict the rupee's poor performance.
The Indian rupee is significantly underperforming, "punching below its weight" despite the nation's robust economic fundamentals. The currency has depreciated over 6.5% against the US dollar in the current financial year, placing it among the worst-performing Asian currencies. This trend is attributed to a surprising lack of foreign investment.
The Economic Survey highlights that tepid foreign inflows have caused the balance of payments to shift into a deficit. This situation, compounded by uncertainty surrounding India's trade deal with the US, has exerted downward pressure on the rupee. Investor reluctance to commit to India is a key concern requiring examination to implement measures for attracting foreign capital.
Chief economic adviser V Anantha Nageswaran pointed to India's high growth, moderate inflation, healthy banking sector, and strong corporate balance sheets as evidence of stellar economic fundamentals. However, the balance of payments deficit, widening to $6.4 billion in the first half of FY26 from a surplus the previous year, is largely triggered by these weak foreign investment flows, with foreign portfolio investors being net sellers of Indian equities.
