KEY HIGHLIGHTS

• India is emerging as the powerhouse of the global economy, claiming the top position among G20 countries with an expansion rate of 6.2% in 2026. 
• The US is expected to expand at a rate of 2.1%, which is even below the average of the world’s GDP growth rate of 3.1%.

Looking at the latest release of the International Monetary Fund, India is emerging as the powerhouse of the global economy, claiming the top position among G20 countries with an expansion rate of 6.2% in 2026. Even with single-digit growth is set to outpace the major economies like the US and China. The US is expected to expand at a rate of 2.1%, which is even below the average of the world’s GDP growth rate of 3.1%.

Despite being the topper among the major economies, with robust growth, traditionally currency should have been getting stronger. But Indian currency is seeing its worst with it falling to the low of Rs91 against the dollar, breaking the psychological barrier of Rs90, and becoming the worst-performing currency in Asia. For the investor, the conversation has shifted from “if” to a nervous “how far” will it go? With currency showing no signs of showing its muscle against the dollar, now the market is whispering, the unthinkable is 100 the next stop? 

India’s economic fundamentals couldn’t act as a shield for the currency. The reality is that the rupee couldn’t be. Fixed, it was caught in a perfect storm of external pressure. Massive foreign capital outflow, along with tariffs being slapped by Trump, weighed heavily on the INR. Along with external factors, macroeconomic factors like a widening trade deficit also played their role in making the INR the worst-performing currency in Asia.

To begin with 

The tariff war is suffocating the rupee.
The greatest weight on the Indian Rupee at the moment is the seismic shift in trade relations with the US, amid India’s continued Russian oil import. Because the US doesn’t like Russia, the US responded by slapping another 50% on tariffs as a sign of displeasure with India, not stopping to buy oil from Putin. As India and the US have not yet reached a bilateral trade deal, Indian exporters are facing the heat as their margin evaporates. As the inflow of dollars from exporters dries up, the safe-haven appeal of the Greenback is seen skyrocketing, leaving INR caught in the vice. These tariffs have had a disastrous effect on the labour-intensive industry, like textiles, and industries like Pharma also faced the heat, as the major market for them is the US.

Outflow of foreign capital

Continuous outflow of FII from the market also weighed on the INR. For the month to date, FIIs have made a net outflow of Rs 36,591.02 crores. This is the seventh consecutive month of outflow.  It was because of FDI that there is some positivity in the market as FDIs continued to put money in the market, and for the month till date, FDIs made a net inflow of Rs 50,720.15 crores. In comparison to FII’s,  FDI, which continued to pour money into the market for the entire 2025, and this January, the story remains the same.

India’s weapon to prevent INR from reaching 100, so soon
A ballooning trade deficit that constantly drains value is at the heart of the Rupee’s recent struggle. In late 2025, India’s merchandise trade deficit reached a record high of $41.68 billion in October alone, with the cost of essential imports like oil, gold, and electronics far outpacing export earnings. This creates a “Dollar trap”. Greenbacks needed for payment, driving the exchange rate toward the 90-per-dollar mark. Usually, a weak Rupee helps exporters by making Indian goods cheaper abroad, but this “safety valve” has been effectively blocked by 50% US tariffs and a global slowdown.

It has the backing of an unfailing “secret weapon” in the form of Service surplus, which has been powered by IT giants, consulting firms, and fast-expanding Global Capability Centres. In fact, this sector has grown to be the new behemoth Dollar-generating engine. In late 2025, while goods trade was losing capital, services exports reached an all-time high of $38.5 billion in a single month. Without this surplus, which is growing in a resilient 12-13% every year, the Rupee probably would have crashed past the 90-mark much sooner.

KEY TAKEAWAYS

• Continuous outflow of FII from the market. For the month to date, FIIs have made a net outflow of Rs 36,591.02 crores. This is the seventh consecutive month of outflow.
• Tariff being imposed on India upto 50%, for India not bowing down to the US’s condition of not buying Russian oil.
• Widening India’s Trade Deficit

Way ahead: What can counter the level of 100? Apart from the weapon of service surplus?
As we move deeper into 2026, the financial world is split on where the Rupee will land. While the 6.2% growth rate provides a solid foundation, the path ahead is anything but certain. 

Handshake on trade deal
The market is banking on a pivotal US-India trade pact by mid-2026. If successful, this deal could lower staggering tariffs from the current 50% down to 25%, providing massive relief to Indian exporters. Such a breakthrough would not only bring much-needed Dollars back into the country but could potentially pull the Rupee back from the brink, stabilising it toward the 88–89 level.

Valuation of INR
From a technical perspective, there is a silver lining. At 90+, the Rupee is starting to look “undervalued” based on its Real Effective Exchange Rate**. This “discounted” entry point could eventually lure back Foreign Institutional Investors (FIIs) who are looking to capture value in a high-growth economy, potentially sparking a much-needed reversal in capital outflows.

(The Real Effective Exchange Rate (REER) is a “fair value” for any currency. It compares the Rupee against a basket of currencies from India’s top trading partners, adjusted for inflation. It tells you if the Rupee’s actual purchasing power is strong or weak compared to the rest of the world.)

The flipside of the story: What can push INR to the 100 mark?
INR Could Face a Structural Slide
If the current climate of global protectionism persists and India’s trade deficit continues to hover near the $40 billion monthly mark, we may be looking at a structural shift in the currency’s value. In this “worst-case” scenario, where export barriers remain high and capital inflows fail to recover, the INR/USD pair could realistically test the historic 100-mark within the next 12 to 18 months.

Is the RBI Letting the Rupee Slide to Save Exports?

The Reserve Bank of India (RBI) seems to have adopted a tactical manoeuvre in deploying a “Managed Float,” especially after pouring billions in reserves to prop up the Indian Rupee at levels in the vicinity of 83 in late 2024. RBI seems to have adopted a policy to “let the Rupee find its own level,” and conversely preserve India’s enormous forex reserves worth $700 billion for emergency purposes only. RBI seems to view a weaker Rupee value as a “Silver Bullet,” especially against the staggering US tariff rates at 50%. In deploying RBI’s “Strategic Tolerance,” although it seems to help Indian Exporters, RBI’s challenges for us are such that they won’t intervene even at levels in the vicinity of 100 to the Dollar.

WHAT WILL STOP INR from reaching Rs100

• India has a powerful “secret weapon” called Service surplus, driven by IT giants, consulting firms, and the rapid expansion of Global Capability Centres (GCCs).
• IT has become a massive Dollar-generating engine.

Can India turn its domestic power to global bargain?

Beyond being just a number on a screen, the INR’s journey in 2026 reflects India’s maturing role in a volatile world order. The worst-case “falling knife” trajectory toward ₹100 is still there, but the tools for recovery from a resilient Services Surplus to a US trade breakthrough are already in place. As far as investors are concerned, it is clear that growth is no longer a guarantee of currency strength. Looking ahead to the second half of this year, the real test will be whether India can turn its domestic momentum into global bargaining power.

WHAT’S IN STORE FOR 2026?

• The market is banking on a pivotal US-India trade pact by mid-2026. If successful, can stabilise INR toward the 88–89 level.
• India’s trade deficit continues to hover near the $40 billion monthly mark; we may be looking at a structural shift in the currency’s value.

About Author

Moumita Samanta

Moumita Samanta is a Senior Fundamental Research Analyst at Rmoney, bringing a unique and powerful combination of financial market acumen and specialized industry expertise to our research team. With over seven years of experience as a fundamental analyst, Moumita has cultivated a deep understanding of investment dynamics across both the equity and commodity markets, previously contributing to the success of organizations like SS wealthStreet, Advisorymadi.com, and Globe Capital. What truly sets Moumita apart is her extensive 12-year background in the bullion market and the gems and jewellery industry. This hands-on, sector-specific knowledge provides an invaluable perspective, particularly when analyzing commodity-linked assets and luxury retail segments.