Why a Falling Rupee Is Quietly Benefiting China

As the Indian rupee slipped past the 91 mark against the US dollar this week, speculation has intensified over how far it could fall and whether the psychologically significant 100 level is now within reach. While much of the public debate suggests that a weaker rupee may not seriously damage India’s economy, an important reality is being overlooked: China stands to gain the most from India’s currency depreciation.

The primary reason behind the rupee’s decline is India’s persistent trade imbalance. Imports continue to far exceed exports, and this gap has widened amid global trade disruptions and tariff pressures. At the centre of this imbalance lies China. India imports more than 7,000 products from its neighbour, spanning electronics, pharmaceutical ingredients, industrial machinery, capital goods, and critical MSME inputs. These imports are deeply embedded across households and businesses, making demand largely inelastic even when the rupee weakens.

India’s trade deficit with China is estimated at nearly ₹2.83 lakh crore, accounting for almost the entire bilateral trade gap. As the rupee depreciates, India is forced to pay more for the same dollar-denominated imports. Over the past year alone, this has resulted in roughly a 6% increase in costs without any meaningful reduction in import volumes. China, by contrast, benefits from higher rupee realisations while tightly managing the yuan, shielding its exporters from currency volatility.

The cost of depreciation is borne almost entirely by Indian businesses. Importers face rising hedging expenses as forward premiums climb, straining cash flows—especially for MSMEs. Unlike foreign direct investment, these higher imports generate no domestic capacity, jobs, or technology transfer. Instead, a weaker rupee leads to a steady transfer of purchasing power from India to China, reinforcing China’s manufacturing strength and deepening India’s structural dependence.

Despite this, many economists remain relaxed, pointing to strong macro indicators such as stable GDP growth, low inflation, controlled crude prices, buoyant tax collections, and resilient capital markets. Yet these positives have failed to support the currency, raising concerns about the disconnect between headline economic strength and underlying vulnerabilities.

In the long run, sustained rupee weakness could hurt an economy that is not yet export-led in goods. Stabilising the rupee will require more than slogans like Make in India or Aatmanirbhar Bharat. It demands stronger execution, accelerated domestic manufacturing, reduced import dependence, and possibly a pragmatic rethink on selective Chinese FDI to replace costly imports.

Without decisive action, market nervousness may intensify, investor returns could be reassessed, and the rupee’s downward drift may continue—bringing the 100 mark closer than policymakers would prefer.