As the Indian rupee crossed the 91 mark against the US dollar this week, questions around how far it could fall—and whether 100 is within sight—have intensified. While much of the debate has focused on why the depreciation may not seriously harm India, a critical aspect is being overlooked: China is the biggest beneficiary of a weaker rupee.
The primary driver of the rupee’s decline is India’s widening trade imbalance. Imports continue to significantly outpace exports, a situation worsened by global trade disruptions and tariff barriers. China sits at the centre of this imbalance. India is one of China’s largest trading partners and imports thousands of products from it, ranging from electronics and pharma ingredients to industrial machinery and MSME inputs.
India’s trade deficit with China stands at nearly ₹2.83 lakh crore, accounting for almost the entire bilateral gap. As the rupee weakens, India pays more for the same dollar-denominated Chinese imports. Over the past year alone, this has translated into roughly 6% higher costs—without any reduction in import volumes. China, meanwhile, benefits from higher rupee realisations while keeping its currency tightly managed and exporters insulated from volatility.
The burden of depreciation falls squarely on Indian businesses. Importers face rising hedging costs as forward premiums surge, squeezing cash flows, particularly for MSMEs. Unlike FDI, these higher imports generate no domestic jobs, capacity, or technology transfer. In effect, a weaker rupee leads to a steady transfer of purchasing power from India to China, reinforcing China’s manufacturing dominance.
Despite this, many economists remain comfortable with rupee weakness, citing strong macro indicators—steady GDP growth, low inflation, controlled crude prices, buoyant tax collections, and resilient markets. Yet these positives have failed to strengthen the currency, raising concerns for small businesses already under strain.
In the long run, persistent depreciation risks hurting an economy that is not yet export-led in goods. Stabilising the rupee will require more than slogans like Make in India or Aatmanirbhar Bharat—it demands sharper execution, stronger domestic manufacturing, and possibly a rethink on allowing selective Chinese FDI to replace import dependence.
Without decisive action, market nervousness could rise further, foreign investors may reassess returns, and the rupee’s downward drift could continue—bringing the 100 mark closer than policymakers would like.
