But the Finance Ministry has cautioned that the benefit will materialise only if global demand remains resilient and inflation stays under control.
In its Monthly Economic Review for May, the Department of Economic Affairs argued that the recent depreciation of the rupee should not be viewed solely through the lens of currency weakness. Instead, it said the adjustment has improved India’s export competitiveness after years of an overvalued exchange rate.
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“The instinct to read currency depreciation as a signal of underlying weakness is understandable but warrants scrutiny,” the report said.
The Indian rupee has come under pressure over the past few months amid rising crude oil prices, sustained foreign portfolio investor outflows and heightened geopolitical tensions in West Asia. According to the review, the currency depreciated about 10% against the US dollar in FY26 and weakened a further 4.9% after the onset of the West Asia conflict, settling at ₹95.7 per dollar as of May 26.
Yet the government argues that the more important measure is not the nominal exchange rate but the real effective exchange rate (REER), a trade-weighted and inflation-adjusted gauge of competitiveness against trading partners.India’s REER stood at 92.72 in April 2026, the lowest level in more than a decade and well below the benchmark level of 100. The report noted that the REER had climbed to a multi-year high of 108.03 in November 2024, making Indian goods less competitive in global markets before the recent correction.
“With India’s REER now below its long-run mean, Indian goods and services are priced more competitively in real terms than at any point in the past decade,” the review said.
The government sees this as a potential tailwind for exports at a time when India is trying to expand its share in global manufacturing and trade.
Citing the Economic Survey 2025-26, the report said a 1% depreciation of the rupee could improve India’s merchandise trade balance by 1.45% over the medium term.
However, the review also warned against assuming that a weaker currency automatically translates into higher exports.
“The second condition is global demand, and perhaps a more binding constraint,” it said.
The report pointed to the experience of FY14, when the rupee depreciated sharply but exports declined in subsequent years because weak global demand and falling commodity prices offset the gains from a cheaper currency.
“Empirical trade studies consistently find that global demand outweighs exchange rates as a factor in driving exports,” it added.
Another challenge is India’s dependence on imported crude oil, fertilisers and capital goods. While exporters may eventually benefit from a weaker rupee, import costs rise immediately, increasing pressure on businesses and consumers. The report noted that higher prices for commodities such as crude oil, LNG and edible oils could erode part of the competitiveness gains if inflation accelerates.
The government nevertheless stressed that India’s macroeconomic position remains strong. Foreign exchange reserves stood at about $697 billion as of May 8, enough to cover nearly 11 months of imports, while gross foreign direct investment inflows touched a record $94.5 billion in FY26.
“India’s adjustment is, moreover, occurring from a position of macroeconomic strength,” the report said.
Basically, the rupee’s decline has restored a measure of export competitiveness that had been lost during years of currency appreciation. Whether that translates into stronger export growth will depend less on the exchange rate itself and more on the trajectory of global demand, commodity prices and domestic inflation.