India’s currency and external buffers are set for another test as US President Donald Trump’s plan for sweeping tariffs on Indian exports collides with fragile trade and capital flows. The market participants may probability bracing for higher volatility in the dollar rupee rate, underscoring the fine balance it must strike between protecting macroeconomic stability, monetary policy, exchange rate policy and preserving policy space for growth.The proposed 25% levy on goods such as textiles, jewellery and pharmaceuticals threatens to widen India’s already negative trade and current account balances. These gaps have historically placed downward pressure on the rupee, which ended March 2025 at 85.45 to the dollar after years of steady depreciation from 75.70 in 2020. While the tariffs themselves may shave only 0.1–0.6% of gross domestic product, their knock-on effects through capital flows and commodity prices could be more destabilising.
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