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India Insider: Reserve Bank of India Intervention is Limited

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

India Insider: Reserve Bank of India Intervention is Limited

After weeks of steady appreciation due to Reserve Bank of India intervention on the 15th of October, the Indian Rupee has now returned to the same 88.72 levels against the USD before the policy action was enacted. The RBI’s recent offensive against speculators may have calmed the market temporarily, but it reflects a reactionary and short-term approach to deeper structural pressures facing India’s external administrative policies regarding the USD/INR.

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USD/INR Three Month Chart as of 5th November 2025

Despite the Reserve Bank of India’s efforts to influence the cash forward market, where Dollar shorts rose by 6 billion USD in September to $59 billion, fundamentals suggest that Rupee weakness is not purely speculative. It is a rational market adjustment due to rising trade barriers amid U.S tariffs on India’s merchandise exports. The added uncertainty regarding trade caused the Rupee to naturally absorb external shocks. Merchandise exports to the U.S fell 12% in September year on year, according to official India data, prompting some calls for government relief.

India’s Foreign Remittances & H1-B Visa Fee Hike

According to World Bank data, India received about 137.7 billion USD in personal remittances from abroad in 2024. From that amount, around $40 billion is coming from the United States. The Trump administration raised the cost of H1-B visa fees from below 10,000 USD to nearly $100,000. And there is now also an increased likelihood of measures aimed at limiting digitally delivered software services to the U.S from India. These combined measures would substantially reduce Dollar receipts via exports of technology driven software and IT services, as well as remittances from a reduction of workers on temporary U.S visas providing on site services to U.S clients. USD inflow has been crucial for India’s balance of payment’s stability.

Reduction of USD reserves when the trade deficit is already rising because of hikes caused by tariffs on India’s exports would widen the current account deficit. Concerns about a decrease in remittances leading to a potentially significant decline of India’s USD reserve ability is possibly discouraging the India Reserve Bank to voluntarily expend reserves to support the Rupee.

Service Exports Cushion India’s Balance of Payments:

India’s total service exports touched 400 Billion USD over the past year with a predominant amount coming from the U.S. In other words, India has had a $202 billion in services trade surplus over the last 12 months, which covered almost 114% of India’s merchandise trade deficit in 2024-25.

India’s goods trade deficit is matched by a services surplus, plus net foreign personal remittances. This USD equation is under threat because of prolonged paralysis from stubborn US and India trade negotiations debating Russian Oil usage and the U.S demand to allow agricultural products into India.

Foreign Investors Selling Indian Equities

In addition, the Indian Rupee is not getting support from investment portfolio inflows. A shortfall of AI related avenues in the nation’s tech sector, and perhaps because of valuations considered too rich, foreign Investors have pulled 17 billion USD so far this year. This sum is more than any other emerging market, which is eating away at the Reserve Bank of India’s FX reserves too.

Global and India-specific uncertainties spurred by the Trump administration’s actions are setting off a retreat of footloose portfolio capital invested into India’s equity and bond markets. If the Reserve Bank of India was confident that inflows of foreign capital would replenish reserves it would likely help the Indian Rupee, and thus investor confidence coming from abroad.

Policy Irony and the Limits of Intervention

The U.S. remains India’s largest export market, but new levies of 50% tariffs are hurting labor-intensive sectors such as textiles, leather, footwear, and gems & jewelry.

While concerns about imported inflation are valid, the benefits of a weaker Rupee should not be overlooked. A mild depreciation could boost India’s service exports, improve the balance of payments, and partly offset the effects of U.S. tariffs on merchandise exports.

A material improvement in U.S and India trade relations is needed. Until a restoration is achieved in relations and a merchandise surplus is possible, alongside healthy services and remittance inflows occurring again, the Rupee’s weakness is likely to persist. In the meantime, Reserve Bank of India interventions could prove to be a short term tactic that proves vulnerable mid-term to the influence of market forces known and unexpected.

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India Insider: Booming GDP & Fragile Foundations of Growth

by with No Comment AMT MarketsCommoditiesFeatured Highlights

India Insider: Booming GDP & Fragile Foundations of Growth

India’s economic footprint on the global stage is expanding significantly each year. As the world’s largest democracy, the nation achieved a remarkable 7.4% GDP growth rate January to March of this fiscal year. Yet, beneath this impressive headline, job creation remains tepid, overshadowed by slowing foreign direct investments (FDI) and lower corporate investments from India’s domestic market.

Despite Prime Minister Narendra Modi’s initiative to attract manufacturing into India and boost jobs, the manufacturing share of GDP has stubbornly clung to 16% for the last decade. While India’s services sector accounts around 55% of GDP, the IT and allied services sectors contributes a mere 3-4% of total employment. Even after the last two decades in which India’s Asian neighbors have shifted labor force out of agriculture and into high scale manufacturing, 45% of India’s workforce still are employed in agriculture and aligned services constituting only 15-17% of GDP.

Speculative Capital, Excessive Credit and Rising Financial Risk

Between 2003 and 2023, India attracted approximately $275 Billion USD from foreign capital inflows, encompassing mostly equity and debt foreign portfolio investments. These capital injections are speculative in nature, primarily chasing returns in financial markets, rather than being directly invested into long-term productive infrastructure like manufacturing and export oriented industries.

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Foreign Portfolio Investment into India 2003 to 2023

Interestingly, India’s public sector banks especially between 2008 and 2015 aggressively lent to infrastructure, real estate and capital intensive projects. The state owned banks tried to fill the gap left behind by private investors. A substantial share of these loans later turned into non-performing loans, exacerbating a duel crisis as corporate and bank balance sheets came under severe stress within a few years. The government of India stepped in and injected 3.1 lakh crore Rupees ($45 Billion USD) to recapitalize the struggling banks, and also orchestrated mergers of weaker banks with stronger banks. India’s citizens helped cover these costs via higher taxes and hidden banking charges.

Reserve Bank of India: FX Reserves and Liquidity Dynamics 

As of financial year 2025, the RBI’S Foreign Exchange Reserves stand at around $696 billion USD. While a stronger reserve buffer is crucial for maintaining external stability, the Reserve Bank of India’s purchase of foreign currency to build reserves leads to problems with domestic Rupee liquidity and creates liabilities for the RBI’s balance sheet. Unless it’s not fully absorbed via Open Market operations, it will end up as excess liquidity in the banking system.

Post 2020 and the Covid19 pandemic, loose monetary policy and excess liquidity within the banking system has culminated with more reckless lending. Unsecured retail credit particularly in personal loans, credit cards and consumer finance is troubling. Non-banking financial companies (shadow banking) and fintech enterprises also expanded rapidly into this segment and now pose risks.

India Falling into Debt Trap 

Per a recent survey conducted by the RBI,  household financial savings have sharply declined to a five decade low of 5.1% of GDP in FY2023, down from 11.5% in 2021. Concurrently, household liabilities have risen, particularly in the unsecured credit segment.

Delinquencies in small ticket personal loans and “Buy Now, Pay Later“ programs are on the rise, prompting the RBI to intervene recently with tightening of personal loan norms in late 2023. This dynamic suggests that excessive credit creation, unaccompanied by productive or real income growth, is fueling a fragile boom in consumption backed predominately by debt especially among middle and lower income groups.

Lower Net Foreign Direct Investment amid Higher Repatriation

Even with coordinated efforts from the likes of Apple, Foxconn (Hon Hai Technology Group) and other electronics companies setting up facilities, and the assembly of manufactured goods like iPhones as part of the “China Plus“ strategy, a more comprehensive method of doing business and improved proactive FDI policy is needed. Overall results are still falling short. Evidence shows many companies continue to choose Vietnam and Mexico over India, which is clearly reflected in the lower net FDI figures in India’s Balance of Payments. In financial year 2024-25, net FDI fell 96% to $353 million USD, caused by a surge of money being repatriated out of India led by foreign companies, and also increased foreign investments by Indian companies to other nations, per the Hindu magazine.

The irony is that India needs foreign capital to finance its current accounts deficit, long-term capital investment would boost jobs and increase wages. As the central Indian government practices an austerity drive and its corporations show an unwillingness to invest, India needs higher foreign capital at this crucial juncture. How will India achieve this task? Without better employment and raising wages, India’s celebrated growth faces risks from underlying cracks.