The rupee’s slide past ₹96 to the dollar has turned ₹100 into a psychological threshold, but the more consequential question for India is not whether that number is crossed. It is whether the Reserve Bank of India (RBI) should spend reserves defending a level that no longer reflects the country’s external conditions, or allow the currency to absorb more of the pressure from high US yields, elevated oil prices and foreign portfolio outflows.
That choice matters well beyond currency markets. India imports about 90% of its crude oil, while fertilisers, edible oils, electronics components, capital goods and several construction-related inputs also depend on global prices and dollar payments. A weaker rupee can improve the price competitiveness of Indian producers, but it can also raise the cost of energy, transport, materials and imported machinery before any export benefit becomes visible. For cities, where household budgets, infrastructure projects and construction supply chains are closely linked to fuel and imported inputs, the exchange-rate debate is an economic management question with direct ground-level consequences.
The International Monetary Fund has argued that India is strong enough to allow the exchange rate to act as a shock absorber as global financial conditions tighten. An IMF spokesperson, as reported by the Economic Times, said the US Federal Reserve’s rate decision would contribute to tighter global conditions. The IMF’s 2025 assessment of India similarly recommended that exchange-rate flexibility remain the principal shock absorber, with intervention reserved for periods of destabilising risk premiums.
This does not amount to a recommendation that the RBI abandon the rupee. The distinction is between managing disorderly movement and defending a particular numerical level. The central bank can sell dollars when markets become illiquid, panic accelerates or the speed of depreciation threatens financial stability. The policy question is whether it should continue using substantial reserves to establish that ₹96, ₹97 or ₹100 is an unacceptable exchange rate even when the underlying external pressures point towards adjustment.
The pressure on the rupee is being driven by several forces at once. High US Treasury yields make dollar assets more attractive, while elevated oil prices increase India’s import bill. Foreign portfolio outflows add to demand for dollars and reduce the supply available in domestic markets. When these pressures coincide, the exchange rate becomes a mechanism through which the wider economy absorbs the shock.
A weaker currency can support competitiveness in two ways. Indian exports become cheaper in dollar terms, while imported finished products become more expensive in rupee terms. Arvind Panagariya, a Columbia University professor and chairman of the 16th Finance Commission, has argued that this can help Indian producers competing both overseas and within the domestic market. An Indian manufacturer may face higher costs for imported machinery or components after depreciation, but a competing finished product brought into India also becomes more expensive.
There is some evidence that India’s price competitiveness has already improved. The Finance Ministry’s May economic review said the country’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.
The timing of that benefit is critical. The Finance Ministry also acknowledged that import costs rise immediately, while exports take time to respond. That lag creates a difficult sequence for an economy that relies heavily on imported energy and intermediate goods. Crude oil becomes more expensive as soon as the rupee weakens. Export volumes, however, may take months or years to increase, depending on global demand, manufacturing capacity and the availability of competitively priced inputs.
This is why depreciation is not automatically a growth strategy. Bank of Baroda chief economist Madan Sabnavis, cited by the Economic Times, has warned that a further 3-4% depreciation could keep imported inflation elevated. The effect would be transmitted through fuel, transport, industrial inputs and household goods. In cities, those costs can feed into commuting expenses, food distribution, building material prices, infrastructure contracts and the operating budgets of public agencies.
The comparison with the 2013 currency episode also remains relevant, although the circumstances are not identical. Panagariya has argued that India is now in a stronger position because inflation is well below the double-digit levels seen then. That gives the RBI more room to tolerate currency weakness. But a better position does not make the economy immune to imported inflation, particularly if oil prices remain high and the rupee continues to decline rapidly.
The RBI’s use of reserves is another central part of the debate. According to an Axis Bank assessment cited in the report, the central bank has sold roughly $250 billion to support the rupee since mid-2023. Axis has argued that India’s external fundamentals may require further adjustment and has projected the rupee at ₹97 by the end of this year and ₹100 by June 2027.
Intervention also creates obligations that are less visible than the headline reserve figure. Reuters, as cited by the Economic Times, reported 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 foreign-currency non-resident bank deposits. Reserves reached a record $785.7 billion, but the RBI also acquired future obligations linked to those transactions.
That distinction matters because headline reserves do not represent the entire cost of defending the currency. 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 the dollars, creating surplus liquidity that required sterilisation. The deposits will also have to be repaid, creating exchange-rate exposure when those future obligations fall due.
The balance-of-payments picture is similarly mixed. RBI deputy governor Poonam Gupta has said that the rupee’s 13.1% depreciation between March 2025 and September 2026 could prove temporary. She has also argued that the currency may not yet fully reflect India’s economic strength and expects the balance of payments to improve as foreign direct investment and other capital flows become more favourable.
Gaura Sengupta of IDFC First Bank, however, has pointed out that much of the recent balance-of-payments support came from FCNR(B) inflows absorbed by the RBI. Excluding those flows, she said, the balance of payments was negative in the first half of FY27. The implication is not that reserves are inadequate, but that the quality and durability of the inflows matter as much as their volume.
The ₹100 mark therefore has symbolic importance but no automatic economic meaning. Crossing it would influence expectations and could encourage importers to buy dollars earlier, exporters to delay repatriating earnings and investors to increase hedging. Companies with unhedged dollar liabilities could also face balance-sheet stress. Those effects could make a sharp decline self-reinforcing.
At the same time, ₹100 is not a line separating stability from crisis. The more useful indicators are whether inflation remains contained, whether capital inflows can finance the external deficit, whether reserves remain comfortable after accounting for forward obligations and whether the exchange rate is broadly consistent with India’s external fundamentals. The evidence cited in the report presents a mixed picture on all four measures.
For India’s urban economy, the policy distinction is especially important. Defending the rupee can limit immediate price pressures, but prolonged intervention may consume policy capacity and delay an adjustment that reflects higher energy and financing costs. Allowing gradual depreciation can distribute part of the shock through prices and competitiveness, but an uncontrolled fall could raise the cost of infrastructure delivery, construction inputs and household consumption at the same time.
The evidence supports neither an unconditional defence of ₹96 nor an automatic celebration of a weaker currency. It supports a narrower policy approach: allow the exchange rate to absorb a meaningful share of external pressure while retaining reserves and intervention capacity to prevent panic and disorderly market conditions. Whether that adjustment produces lasting benefits will depend on factors beyond the exchange rate, including export capacity, manufacturing depth, logistics costs, tariff structures and access to imported inputs.
The central fact is that a rupee at ₹100 would be a significant psychological event, but not by itself a diagnosis of economic crisis. The more important test is whether depreciation remains gradual, whether imported inflation stays manageable and whether the adjustment is followed by stronger external earnings rather than a larger import burden. Those are the indicators that will determine whether the currency is acting as a shock absorber or transmitting a wider economic strain.
