How rupee became a victim of geopolitics & a strategic power gap in 2025: Economic Survey explains

The Indian rupee was the worst performing Asian currency in 2025 and has started 2026 on a poor note, hitting a lifetime low of 92 versus the US dollar. What’s causing the slide, and is it reflective of any underlying issues? The Economic Survey 2025-2026 sheds light on the main reasons for the rupee’s depreciation: it’s a victim of geopolitics and a strategic power gap!

The Economic Survey 2025-26 tabled in the Parliament by Finance Minister Nirmala Sitharaman ahead of the Union Budget speech this Sunday, notes that rupee has become a casualty of foreign inflows drying up.




Track Live: Economic Survey 2025-2026 Top Highlights

“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. When they run drier, rupee stability becomes a casualty,” the Economic Survey says.

Decline of the Rupee: Why Has It Fallen So Much?

Widened BOP deficit, coupled with market uncertainty over the outcome of a trade deal with the US, has exerted pressure on the Indian Rupee, causing it to weaken, the Economic Survey says.

Between April 1 and January 22, 2026, the Indian rupee has depreciated by approximately 6.5% against the US dollar. “However, the movement in the INR has been orderly. Over the medium to long term, exchange rate dynamics are expected to be guided by structural fundamentals, such as productivity gains, export diversification towards higher-value goods and services, deeper integration into GVCs and a stable policy environment rather than short-term fluctuations,” the survey adds.

The Economic Survey points out that the economic growth is good, and the outlook remains favourable; inflation is contained; rainfall and agricultural prospects are supportive; external liabilities are low; banks are healthy; liquidity conditions are comfortable; credit growth is respectable; corporate balance sheets are strong; and the overall flow of funds to the commercial sector is robust.

“Policy dynamism and purposeful governance reinforce this backdrop. The rupee’s valuation does not accurately reflect India’s stellar economic fundamentals,” it says.

To put it simply: the rupee is punching below its weight!

The Economic Survey adds that it does not hurt to have an undervalued rupee in these times, as it offsets to some extent the impact of higher American tariffs on Indian goods, and there is no threat of higher inflation from higher-priced crude oil imports now. “However, it does cause investors to pause. Investor reluctance to commit to India warrants examination,” it says.

The Economic Survey also cites the 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. India has its work cut out,” the survey says.

“It is a country of 145 crore people aspiring to become a richer country within a generation, within a democratic framework. India’s size and democracy preclude the possibility of templates worthy of emulation. With the global dominant power rethinking its economic and other commitments and priorities, throwing global trade into a welter of uncertainty and global frictions mounting and faultlines widening, India’s economic ambitions are confronting powerful global headwinds,” the Economic Survey notes.

Those same forces can be turned into tailwinds if the State, the private sector, and households are willing to align, adapt, and commit to the scale of effort that the moment demands. The task will be neither simple nor comfortable — but it is unavoidable, it adds.