Rupee depreciation: India’s GDP, per capita GDP could shrink in dollars | Economy & Policy News

Based on the exchange rate at the end of March, the country’s GDP at current prices is likely to go down by 2.6 per cent to $3,766.8 billion. 

Thereby India will slip to sixth place in the global GDP league table from fourth estimated earlier. 

In October last year, the International Monetary Fund (IMF) had estimated India’s headline GDP would grow to $4,187 billion in FY26, marginally ahead of Japan’s at $4,186 billion but behind Germany’s at around $4,745 billion. 

At the year-end exchange rate, India’s GDP will be behind the United Kingdom’s $3,839 billion but ahead of France’s $3,211 billion. 

India’s nominal GDP first broke into the top 10 league table in 2010, according to the IMF data, and it became the sixth-biggest economy in 2017. 

The economy subsequently climbed to fifth spot in 2021 and was expected to be the fourth-biggest in calendar year 2025. However, it is likely to remain at fifth spot even if the average exchange rate for FY26 is used. 

This will be the first GDP decline in dollar terms since FY20, when it shrank by 2.7 per cent due to the pandemic. 

India GDP at current prices, or nominal GDP, converted into dollars at the year-end exchange rate, went down on five occasions since FY81. 

The biggest decline was in FY92, when nominal GDP in dollars had declined by 21.6 per cent due to a sharp devaluation in the rupee as part of policy adjustment after a crisis in the balance of payments. The next big decline occurred in FY09 after the 2008 “Global Financial Crisis”. (See the adjoining charts.) 

Rupee depreciation will also shrink India’s per capita GDP by nearly 3.5 per cent in FY26 over FY25. 

It is now likely to decline to $2,651.5 in FY26 from $2,747 a year earlier. 

In comparison, the IMF had estimated India’s per capita GDP would grow by 6.2 per cent in 2025 to $2,878.5 from $2,711.4 a year before. 

The IMF uses an annual average exchange rate to convert GDP numbers in various currencies into dollars. 

India’s headline GDP growth in dollars is likely to do much better if the annual average exchange rate is considered. According to the data from Bloomberg, the rupee, on average, depreciated 4.8 per cent in FY26 compared to 9.9 per cent point-to-point depreciation between March 2025 and March 2026. 

As a result, in FY26, based on the annual average exchange rate, India’s nominal GDP in dollars is likely to grow 2.9 per cent while per capita GDP is expected to increase 1.9 per cent. 

The annual average exchange rate for FY26 is ₹88.9 to the dollar as against ₹94.8 at the end of March. 

The Indian currency depreciated further in the first two months of FY27 and ended at ₹95.79 on Thursday recovering from a record low of ₹96.965 touched on May 20. 

Analysts say the apparent decline in India’s headline macroeconomic number has no immediate impact on the domestic economy because transactions take place in the local currency. “The depreciation changes India economy’s ranking in the global league table, besides making imports of key commodities such as oil & gas expensive in rupee terms,” said Dhananjay Sinha, co-head (research and equity strategy), Systematix Institutional Equity. 

According to him, the current exchange rate is a better way to measure GDP in constant-currency terms than the annual average exchange rate. 

“Asset prices, capital inflows, and trade proceeds are most often valued at mark-to-market levels rather than at annual average exchange rates,” he added. 

Historical numbers suggest that India’s nominal GDP in dollar terms measured at a year-end exchange rate and an annual average exchange rate tend to equalise with a lag as depreciation of the rupee has been a structural feature since FY12.