Something strange is happening with our economy right now, and it affects everyone's wallet. On one hand, official data from 28th November 2025 showed that India's economy grew at its fastest rate in six quarters during July to September. On the other hand, our rupee keeps falling and falling. On Wednesday, December 3rd, the rupee dropped to its lowest ever level of 90.05 against the US dollar. This year alone, the rupee has fallen by more than 4%. So how can our economy be growing fast while our currency is becoming weaker? Let me explain this puzzle in simple terms.
First, understand how currency values work. It's exactly like the price of vegetables in the market. When demand rises but supply stays the same, prices go up. When demand falls while supply remains unchanged, prices come down. The only difference is that in the foreign exchange market, currencies are traded for other currencies, not for goods. A currency loses value when demand for it drops while its supply stays higher in the market. If you needed ₹100 to buy something at the start of the year, a 4% fall means you may need around ₹104 to buy the same thing today. Your money is literally worth less now.
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So why is the rupee falling despite good GDP growth? The answer lies in understanding what drives currency demand. A key factor is how much foreigners want a country's goods and assets. They must buy rupees first to purchase Indian products or invest in Indian companies. When foreign demand is high, the rupee's value goes up. When foreign demand drops, the rupee falls. Right now, foreign institutional investors, or FIIs as they're called, are pulling massive amounts of money out of India. Throughout 2025, these foreign investors withdrew billions of dollars from our stock markets and other investments. When they exit, they convert their rupees back into dollars, flooding the market with rupees and creating huge demand for dollars. This simple supply-and-demand mismatch is crushing the rupee's value.
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The Reserve Bank of India has been fighting hard to control this fall. Since September 2025, the RBI has sold over $26 billion from our foreign exchange reserves to support the rupee. Think of it this way: when the dollar becomes too costly, the RBI releases more dollars into the market. With more dollars available, the price of the dollar drops, helping the rupee stop falling. The RBI recently sold $1.9 billion, bringing our reserves down to about $687 billion. But despite these massive interventions, strong external pressures keep pushing the rupee down. High US interest rates make American investments more attractive, pulling money away from India. Rising global demand for the dollar and ongoing tariff uncertainties add more pressure.
Now here's where it gets complicated. Our GDP is growing because of strong domestic consumption, good manufacturing activity, and robust service sector performance. Indians are buying more, businesses are producing more, and our internal economy is humming along nicely. But this growth also means we're importing more. We need crude oil for our vehicles, electronic components for our phones and laptops, machinery for our factories, and countless other items. India's trade deficit, which means the gap between what we import and what we export, hit a record $41.7 billion in October alone. We're buying far more from the world than the world is buying from us. Every time we import something, we need dollars to pay for it. This constant dollar demand keeps pushing the rupee down.
A weak rupee creates serious problems for ordinary people. When you go to the petrol pump, you're paying more because imported crude oil costs more in rupee terms. Electronics become costlier. If you're planning to study abroad or travel internationally, your expenses shoot up dramatically. Companies that borrowed money in dollars now need more rupees to repay those loans. The weak rupee also pushes up inflation because imported goods become expensive, and these higher costs eventually reach consumers. This puts the RBI under tremendous pressure and may force it to rethink its monetary policy.
Some people benefit from a weak rupee, though. Exporters and IT companies that earn in dollars see their rupee earnings increase. If your company gets paid $1000 for services, you received ₹89,530 on Monday but ₹90,050 on Wednesday, a gain of ₹520 just from the rupee's fall. But even these benefits get reduced when these same companies need to buy imported raw materials at higher prices. Economists warn that constant rupee volatility could ultimately reduce foreign investment coming into India, creating a vicious cycle.
The International Monetary Fund has already lowered India's growth forecast to 6.2% for the next financial year, assuming high US tariffs will continue. India is one of the few major economies that hasn't signed a trade deal with the US yet, and this uncertainty weighs on investor confidence. What makes this situation particularly frustrating is that even when the US dollar weakened globally in November, our rupee still fell. While currencies like the Mexican Peso, Brazilian Real, and South African Rand gained strength, our rupee remained under pressure.
The bottom line is this: economic growth and currency strength don't always move together. We can have a growing economy but a falling currency if foreign investors lose confidence, if our imports far exceed exports, and if global conditions favour the dollar. Right now, despite strong domestic growth, external pressures are overwhelming our rupee. The coming months will be crucial as we watch how trade negotiations with the US progress and whether foreign investors return to Indian markets.