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Over the past decade, the Indian rupee has borne witness to a sustained depreciation—from around ₹60 per US dollar in 2014 to nearly ₹95 per dollar by December 2025. This trajectory is not a mere technical adjustment in exchange rates; it reflects the cumulative outcome of prolonged structural weaknesses within the Indian economy. While official narratives tend to attribute the rupee’s fall to external shocks—most notably the 50% tariff imposed by the United States on Indian exports during the Trump administration—deeper, endogenous failures have left the economy ill-equipped to absorb such pressures. Foreign institutional investors have withdrawn nearly USD 16 billion from Indian markets, merchandise trade deficits touched a record USD 41.7 billion in October 2025, and the Reserve Bank of India (RBI) spent close to USD 30 billion between June and October 2025 to defend the currency. This is not merely a currency crisis; it is fundamentally a crisis of credibility.

The Three-Layered Deception

India’s much-celebrated GDP growth rate of 6.5–7% conceals a troubling fiscal architecture. Construction—largely driven by government expenditure—now accounts for 18% of GDP, up from 13% a decade ago. This represents fiscal stimulus repackaged as organic growth through strategic classification. Manufacturing, despite a decade of “Make in India” rhetoric, contributes only 17% of GDP, far below the 22–25% observed in East Asian economies at comparable stages of development.

Private investment has stagnated as profit expectations have weakened, while current account deficits have widened to record levels—ironically coinciding with the period when growth is claimed to be at its peak. This paradox of rising deficits alongside high growth signals that expansion is not rooted in enhanced productive capacity or export-led momentum, but in consumption financed by imported capital.

Official unemployment figures of 4.7–5.2% conveniently overlook discouraged workers and widespread under employment. Data from the Centre for Monitoring Indian Economy (CMIE) for June 2024 showed unemployment at 9.2%, with labour force participation at just 41.4%—among the lowest globally. Youth unemployment stands at 17.6%. The renewed threat of Trump-era tariffs risks a catastrophe, particularly for textiles and gems, which together provide direct employment to 4.5 million workers. A potential 70 % reduction in exports could trigger mass job losses. Against this backdrop, the government’s ₹45,060 crore relief package—amounting to barely 1.3% of central expenditure—amounts to policy theatre rather than a structural response.

Sub-1 per cent inflation, celebrated as a policy success in October 2025, in fact reflects demand destruction. Food prices contracted by over 2%, signalling deflationary stress. When inflation falls amid stagnant wages and rising unemployment, the economy is contracting, not stabilising. At the same time, rupee depreciation imports inflation—particularly in petroleum and electronics—eroding the purchasing power of nearly 603 million Indians living just above the lower middle-income threshold. Since 2014, the cost of living has risen by around 70%, while wage growth has lagged sharply behind.

The Reserve Trap

India’s foreign exchange reserves peaked at USD 704.9 billion in September 2024, prompting triumphant official narratives. Their subsequent decline to around USD 686–688 billion exposes the fragility of this claim. Reserve depletion reflects desperation rather than strength, as the RBI has expended USD 30 billion in just four months to defend an unsustainable exchange rate. At current rates of drawdown, reserves provide only 14–16 months of import cover—insufficient for an economy burdened by persistent current account deficits and volatile capital flows.

The deeper irony is that much of these reserves have been built on short-term portfolio inflows attracted by high domestic interest rates and equity market gains. These are precisely the conditions that reverse when growth expectations falter. India’s forex reserves are therefore not the “earned surplus” of a current account surplus economy, but a precarious stock of mobile capital chasing returns. Structurally, such reserves are inherently weak.

Manufacturing Vulnerability Exposed

India’s tariff exposure—50% in the US market, 30% in China, and 20% in Vietnam—is not evidence of discriminatory targeting, but of competitive inferiority. India accounts for just 2.8% of global value-added exports, concentrated largely in low-margin services and pharmaceuticals, both highly vulnerable to policy shifts and technological disruption.

Manufacturing unit labour costs remain high despite stagnant real wages, reflecting weak productivity growth. Technology adoption lags 5–8 years behind regional competitors, while infrastructure bottlenecks—poor port connectivity, unreliable power supply, and inefficient logistics—raise compliance costs above those in Vietnam or Bangladesh. Critically, Indian manufacturing exports depend on continuous currency undervaluation to remain competitive. This reliance on serial depreciation signals structural weakness, not strength. Truly competitive economies sustain export success even amid currency appreciation. Meaningful manufacturing transfor-mation demands tough productivity-enhancing reforms—labour retraining, technology diffusion, and supply-chain optimisation—rather than subsidy-driven schemes like the Production Linked Incentive (PLI), which have yielded limited capacity creation relative to their fiscal cost.

Policy Incoherence

The RBI’s decision to cut interest rates in December 2025, even as the rupee was in free fall, exemplifies policy confusion. In import-dependent economies experiencing capital outflows, rate cuts undermine domestic real returns, accelerate capital flight, and intensify currency depreciation. With widening current account and merchandise trade deficits, cheaper credit tends to fuel consumption and imports rather than productive investment. The net result is further rupee weakness without corresponding productivity gains.

Three structural imperatives demand urgent attention. First, manufacturing reform must focus on lowering compliance costs, reducing regulatory delays, and easing labour market rigidities. Rigid hiring-and-firing norms discourage firms from expanding capacity, particularly in labour-intensive sectors exposed to global competition. Second, fiscal consolidation must redirect spending away from transfer-heavy schemes towards productive infrastructure—ports, logistics networks, reliable power—and sustained investment in human capital. Third, export diversification beyond services is essential. Countries like Vietnam and Bangladesh have achieved far higher levels of labour-intensive manufacturing exports per capita through targeted sectoral support and strategic trade partnerships. India requires similar discipline and pragmatism.

The Rupee’s Remorseless Verdict

Exchange rates cannot be manipulated like statistical aggre-gates. From ₹60 to nearly ₹95 per dollar, the rupee has deli-vered its verdict. Consumption-led growth,propped up by asset inflation and persistent current account deficits, has reached the limits of its sustainability. Tariffs may have exposed these weaknesses, but they did not create them. RBI interventions can buy time, not solutions. Unless policymakers confront structural flaws—manufacturing uncompetitiveness, sup-pressed labour participation, and fiscal imbalance—the rupee’s downward spiral will persist. For the 603 million Indians living on the margins of poverty, this decline translates into shrinking purchasing power and diminished opportunity. The bill for a decade of economic illusion has now come due.