Indian Rupee Weakens Amidst Economic Pressures and Trade Tensions

India's economy is facing significant headwinds in 2025, with its currency experiencing a notable downturn. This economic pressure is exacerbated by several key factors, including the performance of its largest oil company and evolving international trade relations. The nation's substantial reliance on oil imports makes its economic stability particularly sensitive to global energy markets and geopolitical shifts.

The Oil and Natural Gas Corporation Limited (ONGC), a major player in India's energy sector, reported a decline in its net profit for the first quarter of the fiscal year 2025/2026. This downturn was attributed to falling global oil prices and unrecorded production volumes. ONGC's standalone net profit for the quarter decreased by 10.2% year-on-year to ₹8,024 crore, with revenue also falling by 9.3% to ₹32,003 crore. The company realized $67.87 per barrel of crude oil, a notable drop from $80.64 per barrel in the same period last year.

Adding to the economic strain, In August 2025, the United States initially imposed a 25% tariff on Indian goods, which was subsequently increased to a substantial 50% rate by September 2025. This move, coupled with threats of further sanctions related to India's purchase of Russian oil, has led to a deterioration in diplomatic and economic relations between the United States and India. In response to these escalating trade restrictions, Indian oil companies have begun increasing prices for domestic consumers.

These combined pressures have significantly weakened the Indian rupee. Analysts have highlighted that the pressure on the rupee has intensified due to the implementation of tariffs and negative news regarding visas, which adversely affect capital flows, particularly in the IT sector. The increase in H-1B visa fees has also contributed to this pressure. Foreign investors have divested Indian stocks, with outflows exceeding $15 billion in 2025. In September 2025 alone, foreign portfolio investors divested ₹7,945 crore from Indian equities.

In response to these market dynamics, the Reserve Bank of India (RBI) has been actively intervening in currency markets. While not defending a specific exchange rate level, the RBI has conducted interventions to ensure a controlled depreciation of the currency, aiming to prevent significant market fluctuations. In August 2025, the RBI deployed a multi-pronged strategy, selling over $5 billion in USD across spot and offshore markets to arrest the rupee's slide. This intervention strategy reflects a proactive approach to managing currency volatility amidst global economic uncertainties.

India's significant reliance on oil imports, which meets over 88% of its domestic consumption needs, makes its economy particularly vulnerable to global oil price volatility. This dependency impacts the nation's trade deficit, foreign exchange reserves, the rupee's exchange rate, and inflation. The economic landscape of 2025 has been shaped by falling oil prices, escalating trade restrictions, and substantial investor divestment, collectively contributing to the weakening of the Indian rupee and presenting a complex challenge for the nation's economic stability.