How tariffs are eating into export gains from a weak rupee
NEW DELHI : Despite a sharp depreciation since 2013, from around 60 to almost 90 against the dollar, merchandise exports grew only modestly, from $313 billion in 2013 to about $440 billion in 2024-25.
While a weaker currency usually makes exports more competitive, experts say the impact has been blunted by years of higher inflation, which kept the rupee’s real effective exchange rate from falling as much as the nominal slide suggests.
And this fiscal, high US tariffs are further eroding whatever cost advantage the currency might otherwise have offered.
The rupee held near 89.24 on November 27, having weakened to a record 89.49 on November 21 following a wider trade deficit and foreign portfolio investment outflows. Its recent recovery, albeit slightly, is seen on account of possible intervention by the Reserve Bank of India.
It has depreciated 3.5 percent against the dollar from the end of March to the end of October, showing a gradual weakening in line with broader emerging‑market currency trends.
To be sure, a weaker rupee can boost exports by making Indian goods cheaper, but the extent of this benefit depends on global demand and how much exporters rely on imported inputs.
“Global demand remains subdued, with key markets experiencing slower growth and tighter financial conditions. In such an environment, buyers are cutting orders outright rather than negotiating lower prices, meaning a cheaper rupee does little to stimulate export volumes,” said Riya Singh, an analyst at Emkay Global Financial Services.
She also pointed to the impact of steep US tariffs on Indian exports, which is eroding any advantage that a weaker rupee might have provided.
When tariffs rise by 25–50 percent, a 1–2 percent depreciation in the rupee does little to improve competitiveness. “India also depends heavily on imported inputs for its exports, so a weaker rupee makes those imports costlier, eating into margins and reducing the benefit exporters might have got,” Singh said.
This is reflected in India’s latest trade data, with the merchandise trade deficit widening to $41.68 billion in October from $32.15 billion in September, led by a surge in gold imports and a sharp fall in exports, especially to the US.
Cumulatively, while merchandise exports during April–October remained little changed at $254 billion from a year earlier, goods imports rose by 6.4 percent to $451 billion.
Most Indian exports are subject to steep 50 percent tariffs by the US, effective August 27. To be sure, both sides are negotiating an interim trade deal to reduce these duties.
Global Trade Research Initiative’s (GTRI) Ajay Srivastava said that a weaker rupee should have boosted India’s export competitiveness, but high input tariffs, strict standards, supply chain issues from quality control orders, costly logistics, and reliance on imported intermediates have erased much of the currency advantage.
“The recent data shows India doesn’t suffer from an overvalued rupee, it suffers from an over-regulated, high-cost manufacturing ecosystem,” Srivastava added.
However, there is reason for optimism, thanks to the recent rollback of quality control orders on key industrial inputs, the rationalisation of GST rates, and the long-pending labour reforms, all of which could help reduce domestic bottlenecks.
“If these reforms are executed with consistency and depth, they could finally allow India’s exporters to benefit from a competitive currency, and unlock the scale and dynamism,” Srivastava said.
But for now, Indian exporters may gain little from a weaker rupee.
“The rupee’s depreciation is occurring at a time when global demand is weak, tariffs are high, input costs are rising, and volatility is elevated. These forces are overwhelming the traditional export boost that a weaker currency would normally provide,” Emkay’s Singh said.