India’s Efforts to Stabilize Rupee Amid Oil Shock: What Investors and Businesses Need to Know
Mumbai: India is urgently working to stabilize its declining rupee as rising oil prices linked to the Middle East conflict threaten to disrupt the world’s fastest-growing major economy. Since the crisis began in February, the rupee has depreciated by more than five percent, worsening losses from 2025 and making it Asia’s worst-performing major currency in 2026 so far.
The rupee hit a record low of over 96 to the dollar on Friday, prompting officials to emphasize that preventing further depreciation is a critical macroeconomic priority. The Reserve Bank of India (RBI) has deployed billions of dollars to stabilize the currency, curbed speculative trading, and extended a special credit line to oil importers to reduce dollar demand.
Prime Minister Narendra Modi has called for voluntary austerity measures to curb dollar-heavy imports, urging reductions in gold purchases and foreign travel for one year. Despite these efforts, pressure on the rupee remains.
“The entire system has been disrupted,” said Dilip Parmar of HDFC Securities, citing massive foreign investor outflows, declining growth prospects, and high crude oil prices. He explained that the rupee’s fall ultimately reflects imbalances in supply and demand, with dollar demand outstripping supply.
The rupee’s decline coincides with a widening current account deficit driven by costly energy imports. Bank of America Securities estimates this gap will exceed two percent of GDP in the current fiscal year, more than double last year’s level and possibly the largest since 2012-13.
Foreign investors have sold over $20 billion worth of Indian stocks since the Middle East conflict began — the fastest pace on record. At the same time, dollar inflows have slowed, raising concerns over a balance-of-payments gap estimated between $67 billion and $88 billion. Economist Dhiraj Nim from ANZ Research noted that the fiscal year 2027 will mark India’s third consecutive year of balance-of-payments deficit, an unusual circumstance.
To defend the rupee, the RBI has burned through foreign exchange reserves, which now stand at around $697 billion, down from over $720 billion before the conflict. While these reserves still cover approximately 11 months of imports, the decline highlights the growing strain on the economy.
The weaker rupee is impacting the domestic economy, particularly manufacturers and food processors reliant on imported raw materials priced in dollars, who are facing rising costs. Smaller firms often cannot hedge these currency risks.
In Kerala’s cashew industry, where raw nuts are mostly imported from Africa, the impact has been severe. “Imports have become far more expensive for the local market,” said Rajmohan Pillai, owner of a cashew firm. He added that buyers can now afford only about 90 percent of last year’s volumes, with more than 80 percent of processing units shuttered in recent years partly due to the rupee’s volatility.
The currency’s decline has also affected students aspiring to study abroad. Education consultants report that studying in the United States now costs over one million rupees ($10,450) more than a year ago. Seventeen-year-old aspiring psychology student Meghna Sen described the situation as “the last straw,” noting how rupee fluctuations now influence even grocery budgets.
The rupee’s depreciation has dealt a blow to India’s ambitions of becoming the world’s third-largest economy. Once critical of currency weakness under previous administrations, Prime Minister Modi has seen India slip to sixth place globally behind the United Kingdom, according to IMF data, largely due to the rupee’s decline.
Nomura analysts warn that more severe measures may be forthcoming, such as fuel price increases, tighter controls on overseas remittances, and policies to attract dollar deposits from non-resident Indians — strategies previously used during economic crises.
Economists caution, however, that these interventions can only moderate volatility rather than solve underlying problems. Nim emphasized that “fundamental factors” still need to be addressed and did not rule out an interest rate hike aimed at controlling future inflation.
“The Reserve Bank of India understands its options,” he said. “What remains to be seen is which path it chooses.”
Special Analysis by Omanet | Navigate Oman’s Market
India’s rupee depreciation amidst surging oil prices and geopolitical tensions presents significant import cost pressures and economic volatility that could ripple across regional trade dynamics. For businesses in Oman, this means both opportunities in that Indian demand for oil and energy products might increase, and risks from currency-driven instability affecting trade partnerships. Smart investors should consider the potential for increased trade with India but also hedge against currency risks and monitor policy shifts closely.
