On a day, when the rupee crossed 92 against the dollar for the first time on Thursday, the Economic Survey asserted that the Indian currency’s valuation does not accurately reflect India’s stellar economic fundamentals.
The Survey added that the Indian currency has become a casualty of foreign inflows drying up, but an undervalued rupee does not hurt as it offsets the impact of higher US tariffs on Indian goods to some extent and there is no threat of higher inflation from higher-priced crude oil imports now.
It highlighted the resilience of a strong Indian economy with favourable growth outlook, contained inflation, low external liabilities, healthy banks with comfortable liquidity conditions and strong corporate balance sheets.
“Policy dynamism and purposeful governance reinforce this backdrop,” said the document,” the Survey said.
Punching Below Weight
However, the rupee is “punching below its weight,” the Survey said. “The Indian rupee underperformed in 2025. India runs a trade deficit in goods. Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments,” it explained.
It cited Australia-based Lowy Institute’s Power Gap Index, which suggests that India is operating below its full strategic potential. India’s power gap score is – 4.0, the lowest in Asia, excluding Russia and North Korea.
Investor Reluctance Concerns
It also noted that investor reluctance to commit funds to India warrants examination at a time when inflation is under control and growth outlook is favourable.
While it admitted that a weakening rupee could fuel inflationary pressures ahead, given that the global commodity prices are expected to remain soft, the impact will be limited.
“With the certainty of import growth and narrower prospects for the kind of export and capital inflow growth seen during the hyper-globalisation phase, emerging-market currencies can be expected to face persistent depreciation pressures,” the survey said.