According to the government's most recent economic report, a declining rupee—often interpreted as an indication of economic strain—may be turning out to be an unanticipated benefit for India's exporters.
However, the Finance Ministry has warned that the gain won't manifest unless inflation is kept under control and global demand continues to be robust.
The Department of Economic Affairs contended in its May Monthly Economic Review that the recent rupee decline should not be interpreted only in terms of currency weakness. Rather, it said that following years of an overpriced exchange rate, the shift has increased India's export competitiveness.

"The instinct to read currency depreciation as a signal of underlying weakness is understandable but warrants scrutiny," the paper stated.
Over the past few months, rising crude oil prices, persistent withdrawals from foreign portfolio investors, and increased geopolitical concerns in West Asia have put pressure on the Indian rupee. The study states that the currency lost around 10% of its value relative to the US dollar in FY26 and then lost an additional 4.9% following the start of the conflict in West Asia. As of May 26, it was worth ₹95.7 per dollar.
However, the government contends that the real effective exchange rate (REER), a trade-weighted and inflation-adjusted indicator of competitiveness against trading partners, is a more significant metric than the nominal exchange rate.

In April 2026, India's REER was 92.72, the lowest level in almost ten years and significantly below the benchmark level of 100. According to the research, before to the recent drop, the REER had risen to a multi-year high of 108.03 in November 2024, making Indian goods less competitive in international markets.According to the assessment, "Indian goods and services are priced more competitively in real terms than at any point in the past decade, with India's REER now below its long-run mean."
At a time when India is attempting to increase its share of global manufacturing and trade, the government views this as a possible export boost.

According to the paper, which cited the Economic Survey 2025–2026, a 1% currency depreciation may enhance India's merchandise trade balance by 1.45% in the medium run.
The report did, however, caution against believing that a declining currency inevitably results in increased exports.Global demand—possibly a more binding constraint—is the second requirement, it stated.
The report did, however, caution against believing that a declining currency inevitably results in increased exports.Global demand—possibly a more binding constraint—is the second requirement, it stated.According to the paper, which cited the Economic Survey 2025–2026, a 1% currency depreciation may enhance India's merchandise trade balance by 1.45% in the medium run.
The research cited the experience of FY14, when exports fell in the years that followed due to sluggish global demand and declining commodity prices, offsetting the benefits of a cheaper currency.Global demand continuously surpasses exchange rates as a factor driving exports, according to empirical trade studies, the statement continued.
India's reliance on imported capital goods, fertilisers, and crude oil presents another difficulty. A weakening rupee may eventually help exporters, but import costs increase right away, putting further strain on companies and consumers.

According to the paper, if inflation picks up speed, some of the improvements in competitiveness may be undone by rising prices for commodities like crude oil, LNG, and culinary oils.
However, the administration emphasised that India's macroeconomic situation is still favourable. As of May 8, foreign exchange reserves were over $697 billion, sufficient to cover imports for almost 11 months, while total foreign direct investment inflows reached a record $94.5 billion in FY26.
"India's adjustment is, moreover, occurring from a position of macroeconomic strength," the report stated.
In essence, a certain level of export competitiveness that was lost over years of currency appreciation has been restored by the rupee's drop.