The Indian rupee has plummeted to a historic record low of 88 against the US dollar, driven by escalating Trump’s tariff pressure on Indian exports. On August 29, 2025, the rupee closed at 88.19, marking its steepest decline yet, as reported by major financial outlets. This sharp drop, fueled by the U.S. imposing a 50% tariff on Indian goods, has sent shockwaves through India’s economy, raising concerns about trade, employment, and growth. In this blog, we will break down why the rupee is under pressure, how US tariffs are affecting India, and what this means for businesses and investors.

Why Did the Rupee Hit a Record Low of 88?

The Indian rupee breached the 88 mark for the first time due to a combination of global trade tensions and domestic economic pressures. Here are the key factors driving this decline:

Trump’s Tariff Pressure:

The Trump administration imposed an additional 25% tariff on Indian goods, bringing the total duty to 50% on exports like textiles, footwear, and gems. This move, effective from August 27, 2025, has disrupted India’s $86.5 billion export market to the U.S., with estimates suggesting a potential $60 billion loss in key sectors. These US tariffs have reduced the competitiveness of Indian goods, increasing dollar demand and weakening the rupee.

Foreign Fund Outflows:

Foreign Institutional Investors (FIIs) sold equities worth ₹170,940 crore in 2025, with ₹39,063 crore offloaded in August alone. This massive outflow, triggered by uncertainty over US tariffs, has put additional pressure on the rupee as investors convert rupees into dollars to exit the Indian market.

RBI’s Limited Intervention:

The Reserve Bank of India (RBI) has been intervening to stabilize the rupee, but its forex reserves dropped by $5.574 billion in January 2025 due to dollar sales. On August 29, the rupee hit an intraday low of 88.31, as the RBI allowed it to slip past its previous defense level of 87.95. Analysts suggest the RBI may permit controlled depreciation to maintain export competitiveness.

Global Trade War Fears:

Trump’s tariff pressure is not limited to India. Tariffs on Canada (35%), Mexico (25%), and China (10%) have sparked fears of a global trade war, boosting the US dollar index to 109.77. A stronger dollar naturally weakens the rupee, especially as oil importers demand more dollars amid rising Brent crude prices ($76.74 per barrel).

How Do US Tariffs Impact India’s Economy?

The US tariffs are hitting India’s economy hard, particularly in labor-intensive sectors. Here is a closer look at the consequences:

Export Losses:

The Global Trade Research Initiative estimates that 65% of India’s $86.5 billion exports to the U.S., worth $60.2 billion, are now subject to 50% tariffs. Sectors like textiles, footwear, jewelry, and shrimp face significant losses, potentially dropping exports to $49.6 billion in FY26. This could reverse five years of export growth.

Job Risks:

Employment-intensive industries like textiles and gems could see job losses, as highlighted by Chris Wood of Jefferies. The $55–60 billion tariff hit threatens wages and private consumption, which accounts for 60% of India’s GDP.

Trade Deficit with China:

Interestingly, the rupee’s 1.2% weekly decline against the Chinese yuan (to 12.3307) could make Indian goods cheaper compared to Chinese products, potentially narrowing India’s trade deficit with China. However, with Chinese goods facing only 30% U.S. tariffs, India’s competitive edge remains limited.

Economic Growth Concerns:

Despite a robust 7.8% GDP growth in April–June 2025, economists warn that prolonged US tariffs could shave 0.6–0.8% off India’s growth over a year. This could dent India’s appeal as a manufacturing hub alternative to China.

What’s Next for the Indian Rupee?

The rupee is likely to remain under pressure in the near term, with analysts predicting it could test levels beyond 88. Here is what to watch:

RBI’s Response:

The RBI is monitoring the rupee closely and may allow controlled depreciation to support exporters, especially against the yuan. Support levels are seen at 87.40, with resistance at 88.80.

Government Measures:

Prime Minister Narendra Modi’s government is countering Trump’s tariff pressure with tax cuts to boost domestic consumption and outreach to 40 non-tariff markets like ASEAN and Africa. These efforts aim to diversify exports and reduce U.S. dependency.

Global Market Trends:

A stronger US dollar and volatile global markets will continue to challenge the rupee. Investors should monitor the U.S. dollar index and Brent crude prices, as well as upcoming RBI monetary policy decisions.

Opportunities Amid the Crisis

While the rupee’s record low poses challenges, it also presents opportunities:

Export Competitiveness:

A weaker rupee makes Indian goods cheaper in non-tariff markets, potentially boosting textile exports to countries importing $600 billion annually.

Diversification:

India’s push to expand trade with 40 countries, including the UK, Japan, and Russia, could reduce reliance on the U.S. market and stabilize the rupee over time.

Investor Caution:

With FII outflows and Trump’s tariff pressure, investors should adopt a cautious approach, focusing on sectors less exposed to U.S. trade, such as domestic consumption-driven industries.

Conclusion

The Indian rupee’s plunge to a record low of 88 against the US dollar reflects the intense pressure from Trump’s tariff policies and global trade uncertainties. While the RBI and government are taking steps to mitigate the impact, businesses and investors must navigate this volatile landscape carefully. By diversifying export markets and leveraging the rupee’s depreciation, India can turn challenges into opportunities. Stay updated on the rupee, US tariffs, and RBI policies to make informed decisions.

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