The rupee’s future depends on some factors beyond India’s control but policy should focus on the rest

Subscribe to enjoy similar stories.The Indian currency has been experiencing sharp depreciation amid the West Asian crisis, driven largely by rising energy prices and moderating capital flows. That said, the weakness of the Indian rupee has been a persistent concern over the past year, even before the conflict began. It has depreciated by about 11% over the past year, with about 5% of this value loss having occurred after the US-Iran war began on 28 February.The main concern for the rupee is India’s weak balance-of-payments position.

High global crude oil prices are likely to push up India’s import bill, while exports to West Asia and remittances from the region will also face the brunt of the crisis. We expect India’s current account deficit (CAD) to widen to 2.1% of gross domestic product (GDP) in 2026-27 from our pre-war projection of around 1%. Moreover, global uncertainties have cast a shadow on capital flows into India.

The country has also lagged in attracting a meaningful share of global artificial intelligence (AI) investments. Foreign portfolio investments (FPI) worsened following the West Asia conflict, with outflows of $21 billion in March-April. There were net FPI outflows of $16.6 billion in 2025-26.

The net FDI flows also remain muted due to higher repatriations and FDI outflows. During April-February, or the first 11 months of 2025-26, India’s net FDI inflows were modest at $6.3 billion, following a poor $1 billion in 2024-25. This compares poorly with the annual average of $31 billion from 2014-15 to 2023-24 in net FDI inflows.India’s foreign exchange reserves have declined by about $33 billion (as of 1 May) since the onset of the conflict, though the country still has reserves of around $690 billion.