The Rupee's Slow Bleed

Every few years, someone in the business pages declares the rupee is "finding its floor." It never quite does. Since the 1991 reforms opened the currency to market forces, the rupee has moved from roughly 18 to the dollar to well past 90 — not in a straight line, but in a series of slow bleeds punctuated by short, sharp corrections.

This piece is about the bleeds, not the corrections. Corrections make headlines. Bleeds make policy.

What actually moved

Three forces explain most of the multi-decade decline: a persistent current account deficit, interest rate differentials with the US, and — the one nobody likes to say out loud — a reform agenda that liberalized the capital account faster than it built the institutions to manage what flows through it.

None of these are exotic. What is unusual is how consistently India has treated currency weakness as a symptom to be managed rather than a signal to be read. The RBI intervenes, reserves rise and fall, and the underlying trade and productivity gaps that actually set the exchange rate stay exactly where they were.

The reform that stalled halfway

Liberalization did three things well: it opened current account convertibility, freed most trade-weighted tariffs, and let capital flow in for portfolio and direct investment. It left one thing unfinished — full capital account convertibility, which the 1997 Tarapore Committee recommended phasing in and which successive governments have quietly shelved after every emerging-market crisis reminded them why caution seemed wise in 1991.

That caution was probably correct in 1997, right after the Asian financial crisis. Whether it's still correct in 2026, with India's reserve position stronger than nearly any peer's, is a live argument — one this piece won't resolve, but should at least name.

1. A fully convertible capital account would let the rupee find a truer market price.
2. It would also make the rupee more exposed to the kind of capital flight that broke Thailand's baht in 1997.
3. Every government since has chosen the second risk over the first opportunity.

What three decades of "floor-finding" actually tells you

Read across the rows and a pattern appears: every major leg down coincides with a global shock hitting an unfinished domestic reform. The rupee isn't weak because India is weak. It's weak because the mechanism that's supposed to absorb shocks — a fully convertible, deep capital market — was left half-built.

"We built a car with a good engine and no shock absorbers, then acted surprised every time we hit a pothole." — attributed to a former RBI deputy governor, paraphrased from a 2019 lecture

That's the uncomfortable center of this argument: the rupee's slow bleed isn't really a currency story. It's a story about which reforms get finished and which get parked indefinitely once the immediate crisis that motivated them passes.

Where this leaves a first-year reading the news

The next time a headline says the rupee has "found its floor," treat it as a market observation, not a policy achievement. Floors found by markets can be found again, lower, the next time a global shock meets an institutional gap nobody closed. Three decades in, that gap is still the more interesting story.