Speaking after the presentation of Union Budget 2026-27, Nageswaran said India’s status as a capital-importing economy makes the rupee particularly sensitive to shifts in global risk sentiment and geopolitical developments. In the current environment, he said, certainty around capital inflows is difficult to achieve.
The CEA described the rupee as “punching below its weight” but noted that depreciation also has a stabilising role. A weaker currency, he said, helps cushion the impact of higher global tariffs and supports India’s export sector, offsetting some of the external headwinds facing the economy.
Nageswaran cautioned against drawing a direct link between exchange-rate movements and Budget arithmetic, saying currency dynamics do not translate one-to-one into fiscal numbers. As a result, the medium-term measures announced in the Budget are unlikely to have an immediate bearing on the rupee’s trajectory.
A sustained improvement in the currency outlook, he said, would depend on a broader shift in global sentiment rather than domestic policy tweaks. “The one big development that could significantly improve sentiment is a potential resolution of the tariff situation with the United States,” Nageswaran said, adding that such a move could ease pressure on capital flows into emerging markets, including India.
Despite near-term volatility, the government believes the current exchange-rate environment is not inconsistent with growth objectives, particularly as export competitiveness remains a key offset amid global trade uncertainty.
