The Tamesis
India should be high on any list of countries eager to see the war with Iran end.
Few countries have been so seriously off-balance. Modi’s Bharatiya Janata Party celebrated a so-called “Goldilocks moment” at the start of the new year, insisting that growth and inflation were perfectly aligned.
In hindsight, this was wishful thinking. The rupee was Asia’s worst-performing currency in 2025, falling 5%. That number is down another 5% so far this year, a clear sign that the Goldilocks rhetoric isn’t out of date just yet.
Granted, the Modi government could not have foreseen that the United States and Israel would attack Iran. Or soaring oil prices damaging India’s $4.1 trillion economy. But in about 12 years in power, Modi’s Bharatiya Janata Party has cured India’s problems in this energy crisis.
That said, twin current account and budget deficits are now hurting the rupee. The trade war launched by US President Donald Trump in early 2025 – and during his first term as leader from 2017 to 2021 – should be enough to set off alarm bells for New Delhi. Now, the rupee is at an all-time low. The USD/USD exchange rate may rise to 96.
Analysts at Nomura spoke for many when they observed that India’s long-term imbalances reflect “a more volatile global environment, but require a deeper rethinking of how India should manage its external sector in the coming years.” In other words, this problem isn’t going away. Indeed, if the situation in the Middle East worsens and the latest vaguely worded “truce” breaks down, things could get worse. The likelihood of doing so is high.
Of course, Indonesia is battling its own financial red ocean. The rupee is at its lowest level since the Asian financial crisis of 1997-1998. The Philippine peso is certainly in trouble too. But then neither country entered the year triumphantly claiming that its economies were booming.
For example, people high-fived premature reports that India’s gross domestic product (GDP) had surpassed Japan’s. Not so much. Modi’s team seems more nostalgic than most governments about AI’s impending glory days.
This explains why India does not celebrate surpassing Japan. News of how its stock market has been eclipsed by Taiwan’s stock market has frequently made headlines in the country. This is quite a feat for an island with a population only 1/60th that of India. Modi’s economy is 4.2 times larger than the $967 billion economy managed by President Lai Chin Tak.
History will tell whether a broader stock index that relies heavily on a handful of companies is healthy or leads to a crash. Here, think South Korea’s TSMC, SK Hynix and Samsung, and America’s Nvidia. However, India, despite benefiting from the data center boom, lacks major AI players. If India had a system similar to China’s DeepSeek, now would be the time for a media leak or two.
All this makes New Delhi less of a “just right” place and more of a place where the RBI is required to stand firm around the clock to defend the rupee.
