The fall of the Indian Rupee has become a major topic of discussion across the country. People are even joking about it — who will hit a century first, Virat Kohli or the Indian Rupee?
The joke may sound funny, but the reality behind it is serious.
In 2025 alone, the Indian Rupee has depreciated by around 5.5%, making it one of the worst-performing currencies during this period. But what does this fall actually mean? And more importantly, why is the Rupee losing its value?
To answer that, we need to start with a basic concept: exchange rates.
What Does It Mean When the Rupee Falls?
When we say the Rupee is falling, we simply mean that its value relative to other currencies, especially the US dollar, is declining.
In practical terms, it means:
- You need more Rupees to buy 1 US dollar
- Imports become more expensive
- Foreign travel, education, and fuel cost more
- India’s purchasing power in the global market reduces
What Is an Exchange Rate?
An exchange rate is the price of one country’s currency expressed in terms of another country’s currency.
For example, if ₹90 is required to buy $1, then the exchange rate is:
₹90 per US dollar
If we look at historical data, we can clearly see that the number of Rupees required to buy 1 US dollar has steadily increased over time. This tells us one key thing:
➡️ The purchasing power of the Rupee has fallen
➡️ As a result, the value of the Rupee has declined
But why does the value of any currency fall in the first place?
Understanding Currency Value Through Demand and Supply
To understand this, let’s treat money like any other good or service and apply basic demand–supply logic.
Demand curve shifts from Demand 1 to Demand 2 , equilibrium shifts and price level falls(p1 to p2), reducing the value of rupee..
Demand curve shifts from Demand 1 to Demand 2′ , equilibrium shifts and price level moves up, increasing the value of rupee.
Supply curve shifts from supply 1 to supply 2 , equilibrium shifts and price level falls, decreasing the value of rupee.
Supply curve shifts from supply 1 to supply 2′ , equilibrium shifts and price level moves up, increasing the value of rupee.
- Y-axis: Price level (value of currency)
- X-axis: Quantity of currency
- Demand curve: Represents demand for Rupees
- Supply curve: Represents supply of Rupees
Role of Demand
- When demand for Rupees falls, the value of the Rupee falls
- When demand for Rupees rises, the value of the Rupee increases
Role of Supply
- When supply of Rupees increases, the value of the Rupee decreases
- When supply of Rupees decreases, the value of the Rupee increases
Key Relationship
- Demand of Rupee is directly proportional to its value
- Supply of Rupee is inversely proportional to its value
Now let us understand the real-world factors that influence this demand and supply.
1. Trade Deficit: Imports vs Exports
When India imports goods, payments are made in US dollars.
When India exports goods or services, foreign buyers pay in dollars, which are later converted into Rupees.
In simple terms:
- Imports create demand for dollars
- Exports create demand for Rupees
The problem is that India imports more than it exports, resulting in a trade deficit.
Because of this:
- Demand for dollars remains high
- Demand for Rupees stays relatively weak
As we saw earlier, lower demand for Rupees leads to a weaker Rupee.
2. Inflation and Its Impact on the Rupee
High inflation means that prices keep rising and the purchasing power of money falls.
For example:
- ₹100 today buys fewer goods than it did earlier
When this happens:
- People feel that holding cash is not very useful
- They shift money into assets like gold, stocks, or real estate
As a result:
- Demand for holding Rupees decreases
- Lower demand for Rupees leads to currency depreciation
3. Foreign Portfolio Investment (FPI) Outflows
Foreign Portfolio Investors (FPIs) play a major role in currency movement.
When FPIs Invest in India:
- They bring US dollars
- Convert dollars into Rupees
- Buy Indian shares and bonds
This process increases demand for Rupees, strengthening the currency.
What Is Happening Currently?
At present, FPIs are withdrawing money from the Indian market.
When FPIs exit:
- They sell Indian assets
- Convert Rupees back into dollars
- Take money out of the country
This leads to:
- Increased supply of Rupees
- Higher demand for dollars
- Fall in the value of the Rupee
This is one of the most important reasons behind the recent decline.
4. Global Uncertainty and a Strong US Dollar
The United States is one of India’s most important trading partners, but currently:
- Trade talks are uncertain
- Agreements are delayed
- Businesses and investors feel unsure about future prospects
In times of uncertainty, investors prefer safe assets.
And globally, the US dollar is considered the safest currency.
Additionally:
- US interest rates are high
- The US economy appears relatively strong
- Global capital flows toward the US
This:
- Increases demand for dollars
- Reduces demand for Rupees
- Puts further pressure on the Indian currency
Conclusion: Why the Rupee Is Under Pressure
The fall of the Indian Rupee is not caused by one single factor, but by a combination of structural and global forces:
- Trade deficit
- High inflation
- FPI outflows
- Global uncertainty
- A strong US dollar
While jokes about the Rupee may circulate online, the underlying economic reality is serious and has real consequences for inflation, imports, and economic stability.
Understanding these factors is the first step toward understanding how currency markets work — and why managing the value of money is one of the most challenging tasks for any economy.