SANJAY MALHOTRA'S tenure as the new Governor of the Reserve Bank of India has begun at a time of global economic uncertainty. The Indian economy is facing a slowdown, surging oil prices, and a weakening rupee—challenges that could have far-reaching consequences.

Finance Minister Nirmala Sitharaman tried to address the slowing domestic economy in the Union Budget 2025-26 by providing salaried individuals some relief on the income tax front in the hope that it will spark a consumption boom, and revive slowing economic growth. But a weakening rupee could throw a spanner in the works.

A depreciating rupee is not just a financial concern—it has significant political and economic implications. When the currency weakens, import costs rise, fuelling inflation. This is especially worrisome for India, a major importer of crude oil, as higher oil prices directly impact inflation.

Over the years, the rupee has steadily weakened against the dollar and, in fact, by as much as 37% since December 31, 2014, when it was trading at 63.04 and touched a record low of 87.95 against the US dollar on February 10. The depreciation has accelerated in recent months—it has fallen 4.7% since January 2024. In fact, some analysts expect it to move near 90 by year end.

But in a break from the past, this volatility has not rung alarm bells in the corridors of policymaking in New Delhi or the central bank in Mumbai or even amongst analysts and market participants. There have been some high-level discussions, and the rupee’s movement is being tracked closely by the government. The RBI has intervened in the forex market to ensure that the depreciation isn’t very sharp to maintain stability. However, the government has come in for sharp criticism from Opposition parties that have questioned it over the handling of the depreciation.