Crawling to Reality: Why Startup IPOs and Repatriated Profits Are Redrawing the Limits of India’s Monetary Defense

Abhishek Pandey

In the glass-walled headquarters of the Reserve Bank of India in Mumbai, the air is thick with the sterile hum of servers and the quiet anxiety of a central bank at a crossroads. Outside, on the chaotic streets of India’s financial capital, the value of the rupee has become the subject of daily headlines and tea-stall debate. For years, the Indian rupee was the picture of managed stability a "stabilized arrangement" in the dry parlance of the International Monetary Fund (IMF). But in late 2025, that stability has fractured.

As of December 2025, the rupee has breached the psychologically scarring barrier of 91 per dollar, marking its descent as Asia’s worst-performing currency of the year. The story of its fall is not merely one of numbers on a Bloomberg terminal; it is a narrative of shifting global geopolitics, a trade war with a resurgent Washington, and a central bank that is finally letting go of the reins.

The End of the "Stabilized" Era

For much of the past decade, the RBI operated like a meticulous gardener, pruning every wild branch of volatility to keep the rupee within a tight, predictable hedge. This approach earned India a "stabilized" classification from the IMF, a polite way of saying the currency was a "soft peg" to the dollar (making sure 83+-2).

That changed in November 2025. The IMF officially reclassified India’s exchange rate regime to a "crawl-like arrangement."

This shift is more than academic. It signals that the RBI is no longer willing to burn through its massive $690 billion foreign exchange reserves to defend a specific price level. Instead, the central bank is allowing the rupee to "crawl" and to depreciate gradually in response to market forces. Under new Governor Sanjay Malhotra, the mandate has shifted from price defense to "volatility management." The message to the world is clear: India is preparing its economy to absorb shocks through its currency, rather than its reserves.

The Washington Wind: Tariffs and Trade Woes

If the RBI provided the permission for the rupee to fall, the United States provided the push. The defining economic event of 2025 has been the imposition of punitive 50% tariffs by the U.S. on a wide swathe of Indian exports.

From the textile hubs of Tirupur to the jewelry workshops of Surat, the impact has been visceral. The U.S. is India’s largest export market, and the sudden wall of protectionism has gutted the profit margins of traditional "Made in India" champions. Sectors like chemicals, leather, and gems which constitute over 55% of India's exports to the U.S., have seen turnover plummet by nearly half.

The uncertainty of a stalled U.S.-India trade deal has hung over the markets like a monsoon cloud. Investors, once bullish on India’s "China Plus One" potential, are now reassessing. The logic is simple: if Indian goods are 50% more expensive in their primary market, the currency must weaken to make those goods competitive again.

The Great Equity Exodus

While the trade deficit widened to a record $41.7 billion in October, a more silent drain was occurring in the stock markets. Foreign Portfolio Investors (FPIs), the fickle harbingers of global sentiment, have pulled over $16 billion out of Indian equities in 2025 alone.

This "Great Exodus" is driven by a cocktail of factors:

1. Valuation Fatigue: Indian stocks had reached dizzying heights, trading at premiums that many analysts called "divorced from reality."

2. The AI Gravity Well: Much of the capital leaving Mumbai is finding its way to the Silicon Valley-driven AI boom, where the promise of immediate exponential returns outweighs the long-term growth story of an emerging market.

3. Monetary Divergence: While the U.S. Federal Reserve has kept rates high to combat its own persistent issues, the RBI has cut rates by 100 basis points this year to support domestic growth, narrowing the "carry trade" profit that once kept dollars flowing into India.

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The Startup Paradox: Lenskart and the Repatriation Pressure

Nowhere is the tension between India’s domestic growth and global reality more visible than in its startup ecosystem. In November 2025, the eyewear giant Lenskart launched its much-anticipated $821 million IPO. On the surface, it was a success sold out in five hours.

However, the IPO also highlighted a hidden pressure on the rupee: FDI repatriation. As early investors in Indian unicorns look for the exit, they convert their rupee gains back into dollars to take home. The Lenskart IPO, valued at a "stretched" 230x price-to-earnings multiple, became a symbol of this cycle. When global funds pull billions out of a maturing startup ecosystem, the resulting demand for dollars puts immediate downward pressure on the rupee.

The Silver Lining: A Competitive Edge?

Is a weak rupee a sign of a failing economy? Not necessarily. In the wood-paneled offices of the Ministry of Finance, some see the depreciation as a "calibrated" necessity.

India’s Real Effective Exchange Rate (REER), a measure of the rupee’s value against a basket of currencies adjusted for inflation has finally fallen below the 100 mark.

"With the REER falling sharply, India's exports are becoming internationally competitive again," notes Neelkanth Mishra, Chief Economist at Axis Bank. "This isn't a crisis; it's a correction."

A cheaper rupee makes Indian software services, pharmaceuticals, and agricultural products more attractive to global buyers. It acts as a natural shock absorber, encouraging domestic production over expensive imports.

The Human Cost: The Imported Inflation Tax

But for the average citizen in Delhi or Bangalore, the macro-level "competitive edge" feels like a micro-level tax. India imports nearly 85% of its crude oil and a vast majority of its electronics and fertilizers.

As the rupee slides toward 92, the cost of these essentials rises.While the RBI has managed to keep headline inflation low (averaging below 2% this year), the "imported inflation" from a weak currency threatens to erode the purchasing power of the middle class. Every dollar-denominated barrel of oil now costs more rupees, a cost that eventually trickles down to the price of a liter of milk or a bus ticket.

Looking Ahead: The 2026 Horizon

The consensus among analysts at J.P. Morgan and Goldman Sachs is that the rupee will find its floor around 92.00 by mid-2026. Much depends on the ministerial-level talks between New Delhi and Washington. If a trade framework is signed and the 50% tariffs are rolled back, the rupee could stage a sharp "relief rally" back toward the 88 level.

For now, India is learning to live with a volatile currency. The days of the "stabilized" rupee are over, replaced by a more mature, albeit more turbulent, integration into the global financial system. The "crawl" may be painful, but in the eyes of the RBI and the IMF, it is the only way for the elephant to dance in a world of high-speed capital and rising trade walls.