The Indian rupee slipping close to the 90 mark against the US dollar has reignited concerns about the country’s current account deficit (CAD) and whether India could face stress similar to the balance-of-payments crisis seen in 2013. While the macroeconomic environment today is stronger, global uncertainty and currency pressures are testing India’s external stability.
Why a Weak Rupee Raises CAD Concerns
A depreciating rupee makes imports more expensive, especially crude oil, electronics and capital goods, widening the trade deficit. Since India depends heavily on oil imports, any sustained fall in the rupee can sharply increase the import bill, putting pressure on the current account.
At the same time, global demand has remained uneven, limiting the pace at which exports can offset higher imports. This imbalance raises questions about whether India’s CAD could expand to uncomfortable levels.
Is This Like 2013? Not Quite
In 2013, India faced a severe external shock due to a widening CAD, high inflation, weak forex reserves and heavy dependence on short-term foreign capital. The rupee had plunged sharply, forcing emergency measures by the Reserve Bank of India (RBI).
The situation today, however, is structurally different. India now holds strong foreign exchange reserves, inflation is relatively better managed, and external debt indicators are healthier. These buffers reduce the risk of a sudden balance-of-payments crisis.
Capital Flows and RBI’s Role
Foreign capital flows remain a key factor. Volatility in global interest rates, especially in the US, has led to intermittent foreign portfolio outflows, adding pressure on the rupee. However, foreign direct investment (FDI) inflows have remained more stable, offering some support to the external account.
The RBI has also been actively managing currency volatility through market interventions, preventing sharp and disorderly movements rather than defending any fixed exchange rate level.
What Could Still Go Wrong
Risks remain. A prolonged rise in crude oil prices, escalation of geopolitical tensions, or sharper global financial tightening could worsen India’s trade balance. If capital inflows weaken significantly alongside a higher import bill, CAD stress could intensify.
Economists caution that while India is better prepared than in the past, complacency could be costly, especially if global conditions deteriorate suddenly.
Can India Dodge a Crisis?
Most analysts believe India can avoid a 2013-style episode due to stronger fundamentals, policy credibility and higher reserves. A moderately weak rupee may even help exports over time. However, managing CAD will require careful monetary policy, fiscal discipline and continued support for export growth.
The rupee at 90 is a warning signal — not a crisis — but one that policymakers cannot afford to ignore.
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