As published on Moneycontrol


The dollar is in deliberate retreat, central banks are hoarding gold, and the post-war monetary order is shifting. New Delhi has a narrow window to turn upheaval into advantage, and it can move faster now.

The United States dollar is in deliberate retreat. In the first half of 2025, the US Dollar Index (DXY) fell nearly 11%, its steepest decline in over fifty years. By year-end, the DXY was down 9.4% over 2025. This was not an accident. Washington is engineering a weaker greenback to revive American manufacturing and ease the burden of a national debt exceeding $38 trillion. The tariff regime accompanying this devaluation, the most aggressive since the 1930s, collected $287 billion in customs duties in CY25, a 192% surge over 2024, with projections of over $2 trillion through 2035. The dual logic is transparent: tariffs raise revenue to reduce deficit dependence, and a weaker dollar makes domestic production cheaper for the world. This is competitive devaluation dressed in the language of national renewal.

The world has responded by diversifying away from the dollar at speed. Central banks purchased 863 tonnes of gold in 2025, nearly double the 2010–2021 annual average. China extended its buying streak to 15 consecutive months. Over 95% of surveyed central bankers expect global gold reserves to rise further, and 73% anticipate the dollar’s share of reserves to decline over the next five years, per the 2025 WGC Central Bank Survey. Gold has surpassed US Treasuries as the world’s top reserve asset held in foreign central banks for the first time since 1996. The post-1971 monetary order, in which countries recycled trade surpluses into American debt, is fraying at the seams.

India’s Reserve Bank has responded wisely, holding 880.8 tonnes of gold as of September 2025 and repatriating 64 tonnes from overseas vaults in the first half of FY26. Gold now constitutes nearly 14% of its foreign exchange reserves, double the share from a decade ago. But sovereign reserve management is the easier part of the response. The harder part, the one that will determine whether India emerges from this reordering as a winner or a spectator, lies in six domestic reforms that must be pursued with wartime urgency.

I. Production and Export Acceleration

A sliding rupee is conventionally treated as cause for anxiety. It should now become a strategic instrument. If Washington can deliberately weaken the dollar to rebuild its factories, New Delhi ought to view rupee depreciation as an opportunity to turbocharge the competitiveness of Indian goods, although this is obviously not the only way to grow Indian exports. India’s merchandise exports remain stubbornly modest relative to GDP; the world’s fifth-largest economy commands a share of global goods exports in the low single digits. A weaker rupee makes Indian textiles, pharmaceuticals, chemicals, auto components, and electronics cheaper for global buyers. But currency alone will not build export capacity and capability. India is fast-tracking free trade agreements, investing in ports, ships, and logistics infrastructure to slash turnaround times while building alternative capacity, and ideating export-credit mechanisms that allow small and medium enterprises to compete on global payment terms. More urgency in ease of doing business reform, customs efficiencies, and directed incentives is needed to revitalise the animal spirits of India’s producers after decades of bureaucratic bullying. 

The rupee’s slide is a subsidy from the macroeconomy. Without more urgent supply-side reform, that subsidy never reaches the factory floor.

II. Labour Market Reforms To Be Implemented

No amount of currency advantage or logistics investment will scale manufacturing if firms cannot hire flexibly. India’s four consolidated labour codes were passed in 2025. However, implementation remains patchy, with barely half the states having notified final rules and bureaucratic cholesterol perennially blocking the diffusion of these benefits. The result is that a mid-sized manufacturer in Karnataka still navigates a thicket of inspector permits, retrenchment thresholds, and compliance filings that a competitor in Vietnam or Indonesia simply does not face. Firms respond rationally: they stay small, stay informal, or invest elsewhere. India needs full and urgent operationalisation of the labour codes, a genuine single-window compliance portal that works at the state level, and a shift from enforcement-by-inspection to enforcement-by-exception. 

Manufacturing at scale is a numbers game. It requires the ability to hire five hundred workers in a quarter without triggering regulatory paralysis. Until that is possible, the “Make in India” ambition will miss the window open globally.

III. Energy Transition

Here lies a tension at the heart of the currency argument. A weaker rupee makes exports cheaper, but it also makes energy imports dearer. India imports over 85% of its crude oil. In a world of reshoring and tariff walls, energy input costs become the binding constraint on manufacturing competitiveness. Every dollar added to the oil import bill by a depreciating rupee partially offsets the export gains. India is therefore simultaneously accelerating domestic energy production through solar capacity additions, nuclear programme deregulation, and natural gas exploration, and building strategic petroleum reserves that insulate manufacturers from import-price shocks. The Viability Gap Funding model that has worked for solar should be extended aggressively to battery storage, green hydrogen, nuclear energy, and other technologies. 

India cannot credibly aspire to be a manufacturing superpower while remaining the world’s third-largest oil importer with negligible strategic reserves relative to its consumption. The massive energy transition plan underway will be a structural pillar for its $10 trillion GDP aspiration. 

IV. Accelerating Import-Export Parity and Export Surplus

While merchandise trade absorbs most of the policy oxygen, it is services that are quietly carrying India toward a historic milestone: net export surplus. In November 2025, India’s combined merchandise and services exports reached $74 billion, up over 15% year-on-year, while total imports stood at $80.6 billion—a gap that is narrowing fast. The engine is services exports. 

Between April and November 2025, India ran a services trade surplus of $134 billion, up from $116 billion in the same period a year earlier. Services exports—IT, business process management, global capability centres, financial services, and an expanding portfolio of professional and consulting exports—are growing at 8–9% per annum, comfortably outpacing services imports. Remittances from Indians overseas stands at an impressive $135B per annum. The steady stream of inward remittances, alongside strong services exports, helped push India’s foreign exchange reserves to $701.4 billion as of mid-January 2026.. 

At this trajectory, the services surplus will, within two-three years, fully offset the merchandise trade deficit, tipping India into an overall export surplus for the first time in its modern economic history.

This is a momentous inflection, and policy must treat it as such. The Government of India should designate the transition to net export surplus as an explicit national target, with the highest priority reform and incentive focus directed at accelerating services export growth. That means expanding the GCC ecosystem with dedicated regulatory clearances and fast-track visa regimes for client-side personnel, deepening India’s position in high-value services verticals—AI and data engineering, consulting, climate advisory, legal process outsourcing, and healthcare services—and ensuring that the domestic digital infrastructure and talent pipelines keep pace with demand. 

India took 30 years to build a $270-billion services export base. The next $100 billion can come in less than five years if policy leans in with the same intensity it brings to manufacturing. A nation that is a net exporter borrows on fundamentally different terms from one that is not. This transition changes everything—the current account, the sovereign rating trajectory, and ultimately, the cost of capital itself.

V. Cost of Capital Reform

Perhaps the single most consequential structural reform is lowering India’s cost of capital. India’s weighted average cost of capital, at 10.5-11.5%, is among the highest of any large economy—nearly double the 6–8% prevailing in developed markets. Roughly 25% of Union government revenues service past debt; the economy’s total annual interest bill runs to approximately ₹50 lakh crore, or over 15% of GDP, against 4–6% in Germany or Japan. 

A high cost of capital compresses innovation, suppresses wages, and forces capital rationing in precisely the sectors—manufacturing, energy, logistics—where India needs the most growth. The corporate bond market stands at just 18% of GDP against over 100% in the United States. Foreign participation in Indian debt remains constrained by end-use restrictions and shallow hedging infrastructure. The sovereign rating, at BBB, embeds a 2–3% risk premium across the corporate spectrum. Fixing this demands harmonised bond regulation between SEBI and the RBI, expanded foreign access to rupee corporate debt, liberation of pension and insurance funds from government-securities quotas, and sustained fiscal consolidation. 

A reduction of 200–400 basis points in WACC would catalyse a virtuous cycle of investment, jobs, and wages—the compounding engine India needs to reach $10 trillion by 2035.

VI. Rupee Internationalisation

If the dollar’s share of global reserves is declining and central banks are diversifying, India should not merely hedge defensively. It should demand a larger share in the new order. Rupee-denominated trade settlement arrangements are already underway with the UAE, Sri Lanka, and parts of ASEAN, but these remain modest pilot programmes. India must scale them decisively: deepen the offshore rupee bond market, build a robust rupee derivatives ecosystem that gives global counterparties confidence in hedging, and position the rupee as a credible settlement currency for the Global South. 

In a multipolar monetary world, the USD will still remain prime. However, the nations whose currencies are trusted for cross-border settlement will enjoy lower borrowing costs, deeper capital markets, and greater geopolitical leverage. India has the trade volumes and the diaspora networks to make this work. 

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The global monetary order is fracturing. In this volatile interregnum, India has a narrow but real window. The countries that emerge strongest will not be those that merely weathered the storm, but those that used it to build—factories, financial markets, technology, and a currency that the world is willing to trust. India has the scale, the demography, and the ambition. What it needs now is the policy implementation to match the moment.

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