Rupee Outlook: FPI Flows, US Tariffs and India Trade Talks
Why in the news
The rupee gained for nine sessions before slipping, even as India negotiated trade terms with US officials ahead of the April 2 reciprocal tariffs.
Key facts
| Indicator | Detail |
|---|---|
| Rupee, March 2025 | Up 2%; among the best Asian currencies |
| Rupee, FY25 | Down 3% vs US dollar |
| FPI, January | $8.7 billion sold |
| FPI, February | $6 billion more outflows |
| FPI, March | Net equity buyers, still selling debt |
| CAD, FY25 | About 1% of GDP |
Trade talks
- Reciprocal tariffs from April 2 remain unclear; some sectors or countries may be exempt.
- India may cut tariffs on several goods, raising imports in the short run, in return for export access to the US.
- Long-term gains possible if India exploits US tariffs on Chinese goods.
- A US deal could strengthen India’s hand with the UK and EU.
Outlook
- Stable crude oil keeps the CAD risk low; the main currency risk is capital flows.
- The US Fed projected two 2025 rate cuts; trade-linked inflation worries may change that.
- Medium-term stability depends on clarity over the trade deal.
Policy view
- Rupee is overvalued (over 2% in February); a modest depreciation would help exporters.
Exam angle
- Terms: FPI, CAD, US Dollar Index, reciprocal tariff.
- FY25 CAD estimate: 1% of GDP.