Why the Weak Rupee Is Having Selective Mercy on Exporters

For decades, Indian exporters viewed rupee depreciation as a natural booster to their toplines. A weaker currency improved export realisations, expanded margins and partly insulated businesses when markets are in a tizzy. That relationship is now weakening. 

Changing Dynamics 

The INR has depreciated sharply in FY26, crossing 94 against the USD amid Brent crude futures surging above $106 per barrel and escalating tensions in West Asia. Ordinarily, such currency weakness should have supported the export momentum. Instead, India’s merchandise exports dropped 7.4% y-o-y in March ‘26 to $38.9bn, with West Asia shipments declining ~68% as logistics disruptions intensified. 

That divergence explains what is changing in global trade. Currency depreciation can offer a short-lived tailwind. However, geopolitical shocks transmit immediately, and their effects are typically structural. 

Exporters are challenged with surging input costs across manufacturing, freight, packaging, and transportation, as oil shoots above $100 alongside a weakening INR. Export realisations, however, adjust with a lag. This stress is now visible sector by sector. 

Textiles and apparel, among India’s largest employment-generating export segments, continue to face weak discretionary demand in the US and Europe. Freight volatility and longer transit timelines are further exacerbating the conditions for exporters. 

Gems and jewellery are witnessing similar pressure. The sector contributes over $27bn annually to exports, yet elevated gold prices and softer luxury consumption globally have tightened liquidity cycles for exporters, causing the March ’26 exports to plunge by 35% on a y-o-y basis. 

Agro exports face a more complex challenge. Delays as the shipping operators are opting for the longer Cape of Good Hope route, have increased transit timelines by nearly two weeks for several destinations. For marine products, spices, tea, and perishables, delayed delivery often translates into direct working-capital stress in addition to deferred revenue. 

The pressure on MSMEs is even sharper. Nearly 45% of India’s exports originate from MSMEs, yet most operate without sophisticated hedging mechanisms or deep liquidity buffers. A large corporation can absorb temporary freight escalation or delayed receivables. Smaller exporters often cannot. 

Interestingly, the impact is not uniformly negative. 

Engineering exports touched a record $122.4bn in FY26, driven by vehicles, steel, and industrial products. However, March numbers revealed the underlying fragility. Exports to the UAE fell 66.8% while shipments to Saudi Arabia dropped 45% because of the West Asia crisis and cargo disruptions. 

Auto components and speciality chemicals remain in a mixed zone. The China+1 strategy continues to create medium-term opportunities for India but rising imported input costs are limiting margin expansion despite the weaker rupee. Gas supply disruptions linked to the Iran conflict are already straining India’s automotive supply chains. 

Additionally, India’s import bill itself is becoming a source of vulnerability. Crude imports in March ’26 declined 13% amid supply disruptions, while freight and war-risk premiums across Gulf routes have nearly doubled. For import-intensive export sectors, the currency advantage is increasingly being neutralised by rising landed costs. The relatively resilient sectors are the ones less dependent on physical trade routes. 

IT services and pharmaceuticals continue to demonstrate stronger stability because their business models are less exposed to freight disruptions and energy-linked logistics. India’s combined goods and services exports still crossed $860bn in FY26, growing by over 4% Y-o-Y, despite the recent merchandise slowdown. 

Building Balance-sheet Resilience 

The larger issue now is not merely export growth. It is export quality and balance-sheet resilience. Exporters with diversified geographies, stronger domestic sourcing, and disciplined hedging practices will navigate such storms better, averting any ratings pressure.  

In the near term, exporters need to move beyond passive currency gains and adopt far more active risk-management strategies. Treasury discipline through structured forex hedging, diversified sourcing of intermediates, and shorter receivables cycles will become critical. Additionally, greater utilisation of ECGC-backed coverage and factoring mechanisms can ease liquidity stress, particularly for MSMEs. The government’s recent expansion of the ₹497-crore RELIEF scheme, including up to 95% ECGC risk coverage and freight reimbursement support, is a timely intervention. Similarly, the 2.75% interest subvention extended to NBFC-led export financing can improve working-capital access for smaller exporters navigating prolonged geopolitical and logistics uncertainty.  

This is why the next phase of India’s export competitiveness requires highly synchronised efforts with the government laying policies benefitting the domestic industry, and the industry participants making bolder, calculated moves leveraging these government policies, building capabilities with agility and enhancing resilience. Because in the present environment, a weak rupee is no longer a competitive advantage. At best, it is a partial insulation against a far larger geopolitical disruption. 

(Sankar Chakraborti is MD & CEO, Acuité Ratings & Research Limited. The views expressed are personal.)