How safe is the rupee from Trump's tantrums? Economic Survey 2025-26 reveals risks

As a trade deal between India and the United States stays elusive, with the threat of US President Donald Trump tariffs hanging over New Delhi, how exposed is the Indian rupee to global political shocks? The Economic Survey 2025–26 offers a cautious answer. Here's what it says.

Rupee underperformed in 2025

The Economic Survey acknowledges that the Indian rupee "underperformed in 2025" with the nation running a "trade deficit in goods".

"Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes
a casualty."

Can the Indian rupee survive Trump's tariff tantrums?

According to the Economic Survey, India's external position is stronger than in past cycles, but the rupee is far from insulated from turbulence driven by US policy shifts.

It points out that despite the rupee's valuation, "Growth is good; the outlook remains favourable; inflation is contained; rainfall and agricultural prospects are supportive; external liabilities are low; banks are healthy; liquidity conditions are comfortable; credit growth is respectable; corporate balance sheets are strong; and the overall flow of funds to the commercial sector is robust."

"The rupee’s valuation does not accurately reflect India’s
stellar economic fundamentals," which means that the rupee "is punching below its weight," it adds.

This undervaluation of the Indian rupee "does not hurt", it says, adding that this "offsets to
some extent the impact of higher American tariffs on Indian goods," adding, "and there is no threat of
higher inflation from higher-priced crude oil imports now." However, it notes that this "does cause investors to pause," and states that this reluctance warrants examination.

Times of high global uncertainity

The Survey flags a sharp rise in global economic uncertainty, driven by geopolitical fragmentation and policy unpredictability, especially in major economies like the US and China.

"Global economic uncertainty remains elevated compared to historical trends, primarily on account of fragmentation in geopolitical relationships and lower visibility on policy continuity."

It notes that shifting trade relations and tariff regimes are already affecting capital flows. Global FDI declined 11 per cent in 2024, excluding a few conduit economies, it notes, citing the United Nations Conference on Trade and Development’s (UNCTAD)

In short, the Economic Survey suggests that the rupee is better positioned than in past global crises, but not shielded.