Foreign inflows must to put rupee on strong footing

New Delhi: The rupee is "punching below its weight," said the Economic Survey, pointing to the surprising lack of foreign investment despite India's strong fundamentals. Tepid foreign inflows have caused the balance of payments to swing into deficit, exerting pressure on the rupee amid uncertainty over India's trade deal with the US.

"Investor reluctance to commit to India warrants examination," chief economic adviser V Anantha Nageswaran wrote in the preface to the survey that laid down measures to attract foreign investment.

The Indian currency has depreciated over 6.5% in the current financial year against the US dollar, ranking it among the worst-performing Asian currencies alongside Japanese yen.


"The rupee's valuation does not accurately reflect India's stellar economic fundamentals," the CEA said.

FPI Outflows at ₹16,500 cr
He listed India's high growth, moderate inflation, healthy banks and strong corporate balance sheets among others.

India's economy is expected to grow 7.4% in the current fiscal year and the survey pegged GDP rising next year at 6.8-7.2%.

The survey attributed rupee depreciation to widened balance of payments deficit - $6.4 billion deficit in first half of FY26 compared with a surplus of $23.8 billion in year-ago period - triggered by tepid foreign investment. As of January 13, FPIs were net sellers of Indian equities, with outflows at ₹16,500 crore, the survey noted.

Uncertainty over the trade deal with the US has also contributed to the decline.

"India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty," the survey noted.

It waded deeper into "India's FDI Challenge: Turning success into sustainable growth," pointing out that "despite a clear government intent... FDI inflows remain below their potential... Proactive reforms are essential for foreign investment."