Macro factors robust, blame on stronger $ for weaker

The finance ministry’s economic report card has attributed depreciation of rupee to external factors and noted that macroeconomic fundamentals are strong, with respect to the current account balance and foreign exchange reserves.
Rupee’s weakening in 2024 was largely driven by the broad-based strengthening of US dollar, amid geopolitical tensions in the Middle East and uncertainty surrounding the US elections.
In first nine months of FY25 (up to Jan 6, 2025), the Indian currency depreciated by a modest 2.9%, performing better than other currencies, such as Canadian dollar, South Korean won and Brazilian real, which saw depreciations of 5.4%, 8.2%, and 17.4%, respectively.
“The value of Indian rupee (INR) is market-determined, with no target or specific level or band. Various domestic and global factors influence the exchange rate of INR, such as movement of dollar Index, trends in capital flows, level of interest rates, movement in crude prices, and the current account deficit,” the survey said.
The report also highlighted that India’s reserves remain adequate and its current account is manageable. India’s current account deficit (CAD) narrowed slightly to 1.2% of GDP in Q2 of FY25, compared to 1.3% in the same period last year. The rise in CAD was attributed to an increase in the merchandise trade deficit, which rose to $75.3 billion in Q2 of FY25, up from $64.5 billion in Q2 of FY24.
“The rise in net services receipts and an increase in private transfer receipts helped cushion expansion in merchandise trade deficit. Net service receipts increased to $44.5 billion in Q2 of FY25, from $39.9 billion in the same quarter of FY24,” the survey said.