Finance Minister Nirmala Sitharaman has stated that the government is closely monitoring exchange rates, particularly in light of the rupee's depreciation against the US dollar. She emphasized that the rupee's slide is primarily against the dollar, attributing this to the global strengthening of the dollar, and that several other currencies have also depreciated against the dollar.
The rupee recently plummeted to a record low, closing at 88.27 against the dollar after touching an intra-day low of 88.38. This fall occurred amid concerns over US tariffs, including a steep 50% tariff on Indian goods that took effect on August 27. The Reserve Bank of India (RBI) intervened through state-run banks to limit further losses. Sectors impacted by the high import duties include textiles/clothing, gems and jewelry, shrimp, leather and footwear, animal products, chemicals, and electrical and mechanical machinery. However, sectors like pharma, energy products, and electronic goods are exempt from these duties.
Sitharaman has clarified that the value of the Indian rupee is market-determined and that there has been no devaluation. The rupee's recent decline could enhance export competitiveness but may also increase the cost of imports. Various domestic and global factors influence the exchange rate of the rupee, including the movement of the Dollar Index, trends in capital flows, interest rate levels, crude oil price movements, and the current account deficit.
The US has been India's largest trading partner since 2021-22. In 2024-25, the bilateral trade in goods stood at USD 131.8 billion, with USD 86.5 billion in exports and USD 45.3 billion in imports. The US accounted for approximately 20% of India's USD 437.42 billion worth of goods exports in 2024-25.
The Finance Minister has also addressed the Goods and Services Tax (GST) rate cuts, assuring that she will personally monitor their implementation to ensure that the benefits are passed on to consumers in the form of price reductions. She described the GST overhaul as a "people's reform," stating that the rationalization of tax rates for a wide range of products will benefit every family and boost consumption. Starting September 22, the GST slab structure will change to 5% for common use goods and 18% for everything else, eliminating the existing slabs of 12% and 28%. A third slab of 40% tax has been earmarked for sin goods and ultra-luxury items.
The Reserve Bank of India (RBI) occasionally intervenes in the foreign exchange market to maintain orderly conditions and curb excessive volatility. The exchange rate of the rupee is largely determined by market forces of supply and demand. India's foreign exchange reserves provide a cushion during times of sudden capital flow reversals. The RBI's intervention strategy can be described as "leaning against the wind" to restore orderly market conditions.
