'Not Hurting Exports or Inflation': CEA Nageswaran 'Not Losing Sleep' Over Rupee Hitting Record Low

The Indian Rupee (INR) has hit a record low, crossing the 90-mark against the US Dollar (USD), despite India reporting strong GDP growth and low inflation. The Chief Economic Advisor, V Anantha Nageswaran, has stated he is "not losing sleep over it" and expects the rupee to improve next year, noting it is currently not hurting exports or inflation.

"It will come back next year. Right now, it's not hurting our exports or inflation. I am not losing my sleep over it. If it has to depreciate, now probably is the right time," Nageswaran said on the sidelines of a Confederation of Indian Industry (CII) event in New Delhi, reported PTI. 

At 9 am on Wednesday, the INR traded at 90.06 against 1 USD, down 9 paise.

The Rupee's plummet is primarily driven by external and capital-market factors, which are currently outweighing the positive domestic economic fundamentals.

Key Reasons for the Rupee's Depreciation:

1. Foreign Institutional Investor (FII) Outflows: Overseas investors are continually selling Indian equity and debt assets, which leads to a net outflow of capital and increases the demand for dollars in the Indian market.

2. Trade Tensions and US Tariffs: The absence of a confirmed India-US trade deal and the prolonged uncertainty surrounding negotiations are negatively impacting market sentiment and capital inflows.

The US imposed a steep 50% tariff on Indian exports starting August 27, making Indian goods less competitive and reducing the inflow of US dollars from exports.

3. Sustained Dollar Buying and Market Dynamics: Banks and importers have been sustaining heavy buying of dollars (for trade and other external obligations), further pressuring the local currency.

A decline in the domestic equity markets also contributed to the pressure on the rupee.

The rupee's fall to a year-to-date decline of 5.3% makes it the worst-performing Asian currency.

Why is the Rupee Falling Despite Strong Fundamentals?

The depreciation is happening even though:

1. Strong GDP Growth: India reported robust GDP growth of 8.2% (July-September quarter) following a 7.8% rise (June quarter).

2. Low Inflation: Retail inflation has stayed below the RBI's targets, cooling to 0.25% in October.

The primary reason for this disconnect is that the external factors and capital flows are dominating currency sentiment. The FII outflows and the trade-related uncertainty (US tariffs, stalled deal) are causing a high demand for dollars that strong GDP and low inflation alone cannot counter. The rupee is acting as a "shock absorber" for the economy against these external imbalances.