Rupee depreciation past ₹96 to the US dollar has turned a currency milestone into a wider policy test for India. The immediate question is whether the Reserve Bank of India should continue using its reserves to slow the fall or allow the exchange rate to absorb more of the pressure from high US Treasury yields, elevated oil prices and foreign portfolio outflows. The less visible question is how that choice will move through India’s cities, where households, manufacturers, infrastructure agencies and construction firms depend on imported fuel, equipment and materials.
The International Monetary Fund has said India is strong enough to withstand the current pressure and should allow the exchange rate to act as a shock absorber. That does not amount to a call for the RBI to abandon intervention. The IMF’s position, as reported by Economic Times, is that exchange-rate flexibility should absorb external shocks while intervention should be reserved for periods of destabilising risk premiums, disorderly markets and panic.
That distinction is central to understanding the debate around the psychologically important ₹100 mark. A currency crossing ₹100 would attract attention, but the number itself does not determine whether India’s economy is stable or in crisis. The more important questions concern inflation, capital flows, reserves, external liabilities and whether the exchange rate is responding gradually to changed economic conditions or falling in a disorderly manner.
For urban India, this distinction matters because currency movements do not remain confined to financial markets. India imports about 90% of its crude oil, according to the report. When oil prices rise and the rupee weakens at the same time, the cost of fuel and other imported goods increases in rupee terms. That affects transport operators, logistics networks, households and businesses that rely on diesel, petrol or imported energy-linked inputs. It also raises the cost base for economic activity across cities.
The same transmission applies to infrastructure and construction. The report identifies fertilisers, edible oils, electronics components, capital goods and imported machinery as areas exposed to currency weakness. Construction companies and infrastructure contractors that depend on imported equipment, components or materials may therefore face higher input costs before any benefit from improved export competitiveness becomes visible. The supplied material does not establish the size of that effect for a particular project, but it explains why a weaker rupee can affect the delivery environment for urban investment.
The case for allowing some depreciation begins with the external balance. High oil prices increase India’s import bill, while high US yields strengthen the dollar and can encourage investors to move funds away from emerging markets. Foreign portfolio outflows add further pressure. If the external shock is sustained, policymakers must absorb the adjustment through some combination of stronger capital inflows, lower imports, weaker domestic demand or a weaker exchange rate that makes exports more competitive and imports more expensive.
A flexible currency distributes that adjustment across the economy instead of requiring the RBI to carry all of it through its balance sheet. Former RBI governor Duvvuri Subbarao has argued, according to the report, that the current pressure reflects deterioration in India’s external balance and that the rupee should be allowed to act as a natural shock absorber. The argument is not that depreciation is beneficial in every circumstance, but that resisting an underlying external adjustment can create its own costs.
There is also a competitiveness argument. Arvind Panagariya, professor at Columbia University and chairman of the 16th Finance Commission, has said depreciation can help Indian producers compete both in foreign markets and against imported products within India. A weaker rupee can reduce the dollar price of Indian exports, while imported finished goods become more expensive for domestic buyers. That could support local producers, although the benefit depends on whether Indian firms have the capacity, quality and supply chains required to respond.
The Finance Ministry’s May economic review offers evidence of part of this adjustment. It said India’s real effective exchange rate fell to 92.72 in April, its lowest level in more than a decade, after reaching 108.03 in November 2024. The ministry argued that the earlier appreciation had reduced export competitiveness and that the subsequent correction had partly reversed that effect. It also cited the Economic Survey’s estimate that a 1% rupee depreciation improves the merchandise trade balance by about 1.45% over the medium term.
That estimate comes with a timing problem. Import costs rise immediately, while exports may take months or years to respond. This is particularly important for urban economies, where imported fuel, machinery, electronics and industrial inputs feed into prices before a possible increase in export earnings is realised. The Finance Ministry itself acknowledged that import costs can rise before exports respond.
India is therefore not a simple export economy in which a weaker currency automatically produces broad gains. Much of its production depends on imported inputs. Oil is the clearest example, but the report also lists fertilisers, edible oils, electronics components and capital goods. A weaker rupee may improve the price position of an exporter while simultaneously raising the cost of the machines, components or energy used to produce the goods.
This creates a difficult sequence for policymakers. The currency can weaken today, imported inputs can become more expensive tomorrow, and the export response may arrive much later. Bank of Baroda chief economist Madan Sabnavis has warned that another 3-4% depreciation could keep imported inflation elevated. For city residents, that risk would be expressed through higher transport and household costs, although the supplied report does not quantify the impact on specific urban services or consumer groups.
The comparison with 2013 also illustrates the limits of reassurance. Panagariya has argued that India is better placed today because inflation is not near the double-digit levels seen then. That gives the RBI more room to tolerate currency weakness without immediately triggering a broad inflation crisis. But the current position is not free of risk. A weaker currency combined with expensive oil can still complicate monetary policy and raise costs for households and businesses.
The RBI’s reserves are at the centre of the institutional trade-off. According to an Axis Bank assessment cited by Economic Times, the central bank has sold roughly $250 billion to support the rupee since mid-2023. Using reserves can slow a disorderly fall and provide confidence during a market shock. But repeatedly defending a particular exchange-rate level can consume policy capacity if the underlying external conditions continue to point towards adjustment.
The cost of attracting dollar inflows also needs to be considered. Reuters reported, as cited in the article, that the RBI’s net forward dollar liabilities reached a record $200 billion in August after policy measures attracted $143.5 billion of inflows, much of it through FCNR(B) deposits by non-resident Indians. Reserves rose to a record $785.7 billion, but those transactions also created future obligations connected to the inflows.
Economist Rajeswari Sengupta has argued that the success of the FCNR(B) scheme should not be judged only by the dollars attracted or the rupee stabilised. Banks received rupees from the RBI in exchange for dollars, creating surplus liquidity that must be sterilised. The deposits must also eventually be repaid, creating exchange-rate exposure. The institutional lesson is that buying time through reserves and foreign-currency mobilisation is not cost-free.
This is particularly relevant when assessing the quality, rather than merely the quantity, of India’s external buffers. Gaura Sengupta of IDFC First Bank has said that much of the recent balance-of-payments support came from FCNR(B) inflows absorbed by the RBI and that, excluding those flows, the balance of payments was negative in the first half of FY27. That view challenges the assumption that every increase in reserves represents a durable improvement in India’s external position.
The case for intervention remains strong when a falling currency becomes self-reinforcing. Importers may rush to buy dollars, exporters may delay bringing earnings home and investors may increase hedging. Companies with unhedged dollar liabilities can face balance-sheet losses, while households and businesses absorb imported inflation. A sudden fall can also create difficulties for monetary policy at a time when oil prices are already pressuring the economy.
The policy distinction, therefore, is between managing the speed and disorderliness of depreciation and defending a fixed psychological threshold. India’s stated position to the IMF, as reported in the article, is that intervention is intended to smooth excessive volatility rather than target a particular exchange-rate level. That approach would allow the rupee to move below ₹96, or even towards ₹100, if external fundamentals warrant it, while preserving reserves for periods of market dysfunction.
There is no evidence in the supplied material that the ₹100 level itself would mark a structural break. Panagariya has called it a number with psychological importance rather than a magic line separating stability from crisis. RBI deputy governor Poonam Gupta has taken a more optimistic view, saying the rupee’s 13.1% depreciation between March 2025 and September 2026 could prove temporary and that the balance of payments may improve as foreign direct investment and other capital flows strengthen.
The evidence is consequently mixed. The IMF sees flexibility as a useful shock absorber. The Finance Ministry’s data indicate that the rupee’s correction has improved real price competitiveness. At the same time, the country’s dependence on imported inputs, the cost of imported inflation, forward liabilities and uncertain portfolio flows limit the gains from depreciation. The exchange rate may improve export competitiveness, but it cannot by itself resolve weak manufacturing depth, expensive logistics or barriers affecting investment and imported inputs.
For India’s cities, the central issue is not whether ₹100 is crossed on a currency screen. It is how the adjustment is transmitted through fuel prices, public and private transport, construction equipment, imported components, household budgets and the financing of urban growth. The supplied evidence confirms that a gradual depreciation can absorb part of an external shock, but it also shows that the benefits are delayed while several costs arrive immediately. The developments to monitor are inflation, the durability of capital inflows, the composition of reserves after accounting for forward obligations and whether improved price competitiveness translates into actual export growth.
