India’s Chief Economic Advisor, Venkatram Anantha Nageswaran, in an interview to described that the Indian rupee’s weakness has largely been on the back of increase in US tariffs on India
Indian businesses shifted to low-tariff jurisdictions
In a video posted on YouTube with Markus Academy, Nageswaran described that as the US imposed 50% tariffs on India for its purchase of Russian crude, the country was put in a very high tax bracket.
He added that with high tariff rates, Indian businesses relocated to lower-tariff jurisdictions to maintain access to the US market, triggering an increase in Indian outbound investment. He claimed some companies even shifted directly to the United States.
Nageswaran described that with heavy US tariffs, there emerged an idea of whether there should be an “India Plus One” approach for the country’s manufacturers, similar to the “China Plus One” policy adopted by some countries to lower their dependence on a single sourcing nation.
The CEA noted that if the tariff rate of 50% had persisted, the country would have been exposed to an ‘idiosyncratic risk’. He added that much of the outbound investment was probably flowing to countries like Vietnam and also to Mexico, which offer proximity to the US market, while some moved to the United States itself.
Idiosyncratic risk is the financial equivalent of a “personal problem” for a specific company or asset. Unlike market-wide fluctuations that affect everyone, this risk is tied to company-specific events, such as a sudden CEO resignation, a product recall, or a unique legal battle. Because these events are random and specific to one entity, they don’t move in lockstep with the broader economy.
Rupee better-performing currency since the millennium
Nageswaran also emphasised that despite the rupee’s weakening in 2025, it has been one of the better-performing currencies among emerging markets since the millennium.
He further pointed out that even in the post-COVID period, the rupee has not been an outlier compared to its peers.