Indian Rupee Hits Record Low, Modi-nomics Shaken by Trump Tariffs

Foreign Capital Flight Triggered by Punitive Tariffs
Equity Market Plunge Wipes Out $1 Trillion in Market Value
U.S. Trade Negotiations Emerging as Key Variable for Growth

As tensions with Washington over imports of Russian crude escalate, punitive U.S. tariffs have dragged the rupee to an all-time low against the dollar. Mounting uncertainty over India’s growth trajectory has accelerated capital outflows, exacerbating currency weakness. The rupee’s slump, compounded by the slowest economic growth in four years, is raising alarm over the durability of Prime Minister Narendra Modi’s signature economic strategy, “Modi-nomics.”

U.S.-India Rift over Russian Crude Imports

According to Nikkei Asia on the 15th (local time), the rupee closed at a historic low of 88.491 per dollar on the 11th, pressured by foreign investor withdrawals since the beginning of the year. In February, the rupee had already weakened to 88.00 per dollar amid persistent foreign selloffs and broad dollar strength. On September 1, it briefly touched 88.33 before the Reserve Bank of India (RBI) intervened with dollar sales, closing the day at 88.19.

The exodus of foreign capital is closely tied to trade frictions with Washington. Punitive tariffs imposed by the Trump administration in retaliation for Indian imports of Russian crude have heightened uncertainty and weighed heavily on growth expectations, further undermining the rupee. U.S. tariff rates on Indian goods stand at 50%—the highest in Asia. While President Donald Trump has described Prime Minister Modi as a “close friend and partner,” he has simultaneously pressed European nations to impose similar punitive tariffs, intensifying pressure on New Delhi.

India has pushed back, insisting Russian crude imports are vital for energy security and denouncing U.S. actions as “unfair and unjust.” Despite five rounds of negotiations through last month, no agreement has been reached. Bloomberg noted that “Trump’s punitive tariffs upend decades of close bilateral ties,” adding that the tariff hikes have acted as a trigger in the currency market, leaving the rupee the worst-performing Asian currency so far this year.

Stock Market Rout Deepens, Indian ETFs Post Losses

Investor unease is equally visible in equities. The Indian market slipped into bear territory in March, following the escalation of Trump’s tariff measures. Benchmark indices Nifty 50 and Sensex, which hit record highs last September, have since entered their longest losing streak, each down 14%. Market capitalization has shed $1 trillion. Small- and mid-cap indices have fallen more than 20%, cementing bear market conditions. Although the market has stabilized since August, no clear rebound has materialized.

The prolonged downturn has also hit Indian exchange-traded funds (ETFs) listed on the Korea Exchange. Most of these funds, launched in 2023 amid expectations of rapid Indian growth, are now underperforming. As of last month, only 2 of 12 Indian ETFs traded in Seoul were breaking even, with the rest posting negative returns. Samsung Asset Management’s KODEX India Nifty 50 ETF, for instance, returned –2.01% over the past six months, –3.69% over three months, and –4.84% over one month.

This underperformance contrasts starkly with other Asian markets. Of the 44 China- and Hong Kong-related ETFs listed in Korea, only two posted losses over the past month. Japanese ETFs, barring semiconductor-concentrated vehicles, are largely in positive territory. The KODEX Japan TOPIX100 ETF surged 7.18% last month, while Vietnam’s sole domestic ETF, ACE Vietnam VN30 (synthetic), delivered returns of 15.05% over one month and 26.57% over three months.

Lowest Growth in Four Years, Calls for Structural Overhaul

Market weakness is fueling fears that a slowdown in Modi-nomics is inevitable. Modi’s third-term administration, launched following last year’s election victory, had pledged large-scale infrastructure investment, manufacturing promotion, and financial and tax reforms as its core agenda. Yet geopolitical frictions, supply chain realignments, and weakening growth are undermining policy effectiveness. With punitive tariffs from Washington adding uncertainty, alongside high inflation, sluggish consumption, rising unemployment, and widening inequality, analysts warn that deeper structural reform is indispensable.

India’s economy logged its weakest growth in four years. According to the National Statistical Office, GDP expanded 6.5% in FY2024–2025 (April 2024–March 2025), down 2.7 percentage points from 9.2% the previous year. This was the lowest reading since the pandemic year of FY2020–2021, when GDP contracted by 5.8%, and far below the government’s 8% growth target. AFP attributed the slowdown to manufacturing weakness, tight monetary policy, and depressed urban consumption sentiment.

Prospects for the current fiscal year remain challenging. Sam Jokim, economist at EFG Asset Management, told AFP that “India is projected to grow 6.5% in FY2025–2026, but U.S. tariff policy remains a major uncertainty.” He noted that while New Delhi has pledged support for vulnerable industries such as textiles and footwear, along with consumption tax reforms to cushion the shock, the ultimate trajectory hinges on the success of trade negotiations with Washington. Citigroup has estimated that the tariffs could shave 0.6 to 0.8 percentage points off India’s GDP growth.