TOKYO – In Asia, no national leader has been better at managing a dysfunctional economy than India’s Narendra Modi.
Whenever the numbers are disappointing, the prime minister delivers the latest version of his party’s ad campaigns. Recently, this has been the Goldilocks era of growth. Yet Modi faces an economic symptom he cannot explain: a perpetually weak rupee.
India’s currency was the worst performer in Asia in 2025, down 5%. The trend has continued this year at a critical time for the world’s most populous country, as rising oil prices rock the global economy.
The rupee has lost another 5.5% since January 1. And given that India is near the top of the list of deficit-accounting economies, the rupee remains “very vulnerable to a major devaluation,” says economist Priyanka Kishore on Asia Decoded.
Things could get worse if Wells Fargo and Van Eck Associates analysts are right that the rupee could weaken to 100 against the dollar from around 95 as the Iran war continues.
As researcher Ahmed Aizan at the broker Equiti Group told Bloomberg: “100 per dollar is no longer a tail risk – it is a reliable level of stress if the current situation continues. The latest measures look like short-term stabilization tools rather than planning solutions.”
The move by the Reserve Bank of India suggests that Asia’s third-largest economy is in financial trouble. There, Governor Sanjay Malhotra’s team is insisting on taking foreign exchange rates to stop the sale. And mostly in vain.
The RBI’s failure to ease monetary policy cuts comes as Brent prices fall above US$100 for a prolonged period. This is higher than the original $70 that was considered by Malhotra’s team in Mumbai in October. The price hike increases India’s monthly oil import bill by $5 billion.
“The pressure is likely to continue if the low price remains at $100,” says Siddharth Rajpurohit, an analyst at Systematix Institutional Equities. He added, this problem will challenge Modi’s Bharatiya Janata Party “soon.”
The RBI is also encouraging India’s largest banks to issue their own dollars instead of relying on the central bank. That has the RBI selling dollars behind the scenes to put the floor under the rupee. In 2025, RBI sold $ 51.7 billion, the most on record.
The RBI’s guidance “is effective in providing dollars to the market,” says Kunal Sodhani, head of treasury at Shinhan Bank. “But the durability of this support will depend on a variety of external factors – chief among them, the pace of oil prices and the broader political environment.”
This order causes some damage to the Indian banking system. This week, shares of State Bank of India fell nearly 4 percent to their lowest level in 2025. Shares in ICICI Bank and HDFC Bank also gained significantly.
Yet the pain of higher oil prices will be even greater among India’s 1.4 billion people. India is the third largest exporter of raw materials, which makes it among the most vulnerable countries from the Iran war, especially the closure of the Strait of Hormuz.
As Pankaj Chaudhary, India’s junior finance minister put it, the economic impact and consequences of India’s current account deficit depend on “the continuing trend of various economic conditions.” In other words, a weak rupee is positive for exports but negative for Indian exports.
Chaudhary expressed confidence that the RBI is “entering into a situation of extreme uncertainty.” However, he argues that New Delhi’s foreign exchange reserves are sufficient to cover more than 11 months of imports.
The Modi government, Chaudhary notes, is looking at how events in the Middle East unfold and the damage that will come to India’s $4.1 trillion economy. “The overall definition of an ongoing conflict will depend on the evolving global situation, including the duration and intensity of the conflict,” he says.
Fitch Ratings analyst Thomas Rookmaaker puts India among “a number of exporters” that “will face a sharp decline in external balances and real incomes if energy prices rise and shipping problems persist.”
It’s no help predicting that much of India is set for above-normal temperatures – and possible heat – through June. This increases economic risk significantly as Middle East energy risks increase. Weather problems will worsen the supply already needed to cool the community.
However much of the downward pressure on the rupee reflects the status quo that Team Modi had 11 years to resolve before the bombs fell on Tehran. Before the war in the Middle East, New Delhi “had a huge trade deficit” and now “it will widen” going forward, says Abbas Keshvani, strategist at RBC Capital Markets.
For all Modi’s ideas and slogans, India’s economy is not where the voters who returned the BJP to power in 2014 had hoped. In those days, Modi was a true cultural hero. His success in running the western state of Gujarat from 2001 to 2014 impressed the public.
During his tenure as chief minister, Gujarat annually produced more domestic products, greater productivity and innovation, less bureaucracy and corruption, and better infrastructure than the national average.
In 2014, the BJP returned to the center hoping that Modi would use the “Gujarat model” across Asia’s third largest economy. However, it turned out that Modi’s plan was not as simple as expected. Nowadays, talking about the Goldilocks era has aged very badly in part because of 11-plus years of neglect.
Earlier, he made big gestures to open up sectors, from aviation to defense to insurance to retail to more foreign investment. The initiative even attracted Walmart India. Initiatives to open up the pharmaceutical and manufacturing industries hold great promise, too.
However, the report card is not good. For example, in 2014, Modi announced the “Make in India” program. The plan was to increase the GDP share of manufacturing up to 25% to reduce high youth unemployment. And credit where it’s due: India attracted Airbus, Amazon, Apple, Intel, Microsoft, Nissan, Samsung and Taiwan’s Powerchip Semiconductor Manufacturing Corp.
But almost 12 years later, the sector accounts for only 17% of the economy. Now, as oil and fertilizer prices rise and export markets shake, it will become increasingly difficult for India to grow that share.
Part of the problem is that the 7-8% growth rate does not ensure that its benefits reach the middle and lower classes. Or to reduce youth unemployment. This failure to create millions more manufacturing jobs is a small part of why Modinomics has entered the era of US President Donald Trump 2.0 on a low note.
Pressure has been a short-term victory for the elite rather than lifting the weight underground to reduce bureaucracy, increase transparency, level the playing field, empower people and raise productivity.
As 2026 draws to a close, Modi still seems to be focusing more on GDP than substantive reforms. Bottom line: depression is lifting Japan in terms of GDP. India closed 2025 with a growth of 7.8%, ahead of China’s 5% pace. Economists expected the Modi government’s economy to grow by 7.5% this year. It was before the Iran conflict caused tension in world markets.
India beating Japan in terms of GDP would resonate as strongly in Tokyo as in New Delhi. The shock of China overtaking Japan about 15 years ago is still there. It marked the definitive end of Japan’s postwar economic miracle. It reinforced the notion that the country’s “lost decades” of deflation had left a deeper mark than many wanted to believe.
The obvious point is that the size of an economy is more important than the income of its people. And it’s compelling. China’s $19.4 trillion economy may outpace Japan’s $4.2 trillion economy, but China’s GDP per capita is still less than half that of Japan’s. Japan, too, enjoys a GDP per capita about twelve times that of India.
This undermines the Goldilocks story. Until India’s policies to grow better, not just faster, the rupee will remain on the selling stage. It is also a reminder that all is not well in the “New India” as Team Modi often claims.
Follow William Pesek on X at @WilliamPesek
#War #Iran #pushes #India #brink #financial #crisis #Asia #Times