India is prepping emergency capital and import controls as INR hits new lows

Out of room: After two years of shielding consumers from oil shocks, the Prime Minister’s Office, the Finance Ministry, and the Reserve Bank of India are in active discussions on emergency FX-saving measures, Bloomberg reports, citing people it says are familiar with the matter.

The INR closed at 95.64 per USD yesterday, a record low and the worst showing in Asia. The dip is triggering corporate hedging losses, amplifying USD demand exactly as supply tightens. Meanwhile, FX reserves fell to a one-month low of USD 690.7 bn. Brent is up 46% since the 28 February US-Israel strikes on Iran, pushing India's import bill into structurally unsustainable territory. FPI outflows have exceeded USD 20 bn since the war’s onset.

“An annual depreciation of roughly 4% is not a crisis but inevitable for maintaining India’s export competitiveness — potentially leading the INR towards the 100/USD mark,” former RBI research director and ex-IMF economist Charan Singh tells EnterpriseAM. With inflation running at nearly 6% in India versus 2% in the US, the math does the work.

Why it matters

Tightening curbs could threaten India-UAE trade and real estate flows: Dubai’s bullion ecosystem is the most exposed single trade, and India is its largest customer. Tighter import curbs would hit volumes fast. A tightening of the Liberalized Remittance Scheme, currently capped at USD 250k annually, could slow Indian capital flowing into Dubai and Abu Dhabi real estate — a financial artery few corridor players have priced in. For Gulf SWFs sitting on Indian assets, the entry point is getting cheaper, but the balance-of-payments deficit is tracking above USD 70 bn, its highest point since 2013.

Hiking and widening

State refiners are preparing an increase of about INR 5 (USD 0.06) per liter — far below the INR 15-20 needed to fully offset losses, Bloomberg reports, citing sources it says are in the know. The plan is to trim daily under-recoveries of roughly INR 10 bn (USD 105 mn), with state refiner losses now past INR 1 tn (USD 12 bn) over 10 weeks. The two-year excise-duty cushion that absorbed the volatility cost Delhi nearly 0.5% of GDP, per Nomura, and it's run out.

“Strategic paranoia” is what businesses should now adopt, Uday Kotak, founder of Kotak Mahindra Bank, said this week. He argues that the impact has been muted so far but is “set to come big” and that firms should plan independently rather than rely on state support.

India’s current account deficit is expected to widen to 1.5-2.4% of GDP in FY 2027. The revisions came on the back of revised crude assumptions of USD 90-95 / bbl plus rising gas and fertilizer import costs.

What’s next

The RBI’s weekly FX reserves data due Friday will indicate whether drawdowns are accelerating. Markets will track whether state refiners move on pump prices before or after Prime Minister Narendra Modi lands in Abu Dhabi. Any tightening of remittance limits or fresh RBI measures on FX outflows reads as escalation.

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