Year Of Headwinds: India's Tryst With Trump Tariffs, FPI Exodus And Rupee Plunge

India's economic performance during the year could be defined as resilience in the face of mounting global headwinds. From the United States' radical tariff policy to the exodus of foreign capital from the Indian markets, and the rupee's plunge below the 90-mark — 2025 can be viewed as the year that reshaped India's tryst with the global order.

Here's a detailed look at the three major headwinds India faced during the year:

Trump Tariffs

The high US tariffs, say analysts, was arguably the toughest economic setback faced by India during the calendar year, as the levies dampened the country's exports to its biggest market.

The tariffs saga started in April, when US President Donald Trump announced 10% interim duty on imports from all trading partners. A deadline was issued till July 31 to strike a trade deal with Washington to evade "reciprocal tariffs" from August.

Since the India-US trade pact could not be finalised, a so-called reciprocal levy of 25% was imposed from Aug. 7, and from Aug. 27, another 25% tariffs was slapped on Indian imports to "penalise" the country for its continued purchase of Russian crude oil.

This took the cumulative tariffs on India to 50%, which was the highest among all major trading partners, and even dwarfed the 47.5% average tariff imposed on China.

Between May and October 2025, Indian shipments to the US dwindled from $8.83 billion to $6.31 billion, marking a 28.5% plunge, economic think-tank Global Trade Research Initiative (GTRI) said in a recent release.

Monthly exports fell consistently from $2 billion in June to $1.52 billion in July, crashed to $964.8 million in August, eased further to $884.6 million in September, and finally recovered to $1.5 billion in October, it added.

India, however, has managed to weather the storm by diversifying its exports to other key geographies. The country's overall merchandise exports in November jumped 19% year-on-year to $38.1 billion.

FPI Exodus

One of the main reasons why the Indian stock markets have remained rangebound for most of 2025 is the exodus of foreign portfolio investors. The FPIs have pulled out a record Rs 1.55 lakh crore, or more than $18 billion in the year so far, data from securities depository NSDL shows. This has exceeded the previous record sell-off of $16.5 billion in 2022.

While high price-to-earnings ratio has lingered as a concern, analysts also link the sell-off to the dwindling value of rupee, which has diminished the returns on Indian equities for overseas investors in dollar terms.

The Nifty 50, India's benchmark equity market index, has risen close to 11% in local currency terms in 2025 so far; but the return in dollar terms stands at about 5.5%, according to Bloomberg data. This is considered to be the lowest among major global market indices.

The FPIs started 2025 with a massive sell-off, as they dumped Indian equities worth around Rs 78,000 crore in January. This was followed by a net-selling of Rs 34,547-crore shares in February.

The heaviest sell-off was then recorded in August, when they offloaded equities worth nearly Rs 35,000 crore; followed by Rs 23,885-crore sell-off in September. In December, the net-selling so far has been of about Rs 12,000 crore.

Analysts, however, see global capital being routed back to the Indian markets once the cloud over India-US trade deal is lifted. The Reserve Bank of India, in its December bulletin, also linked the trade deal uncertainty to FPI flows turning negative. “The uncertainty surrounding the India-US trade deal and investors' caution around high domestic valuations kept net FPI flows to India muted in recent months," it said.

Even as FPIs remained apprehensive about the Indian market in 2025, the domestic institutional investors stayed upbeat. They poured in a record Rs 7.6 lakh crore in Indian equities, providing a significant support to the market amid the massive foreign outflows.

Rupee Plunge

The Indian currency is the "worst performing" among Asian peers in 2025, as a strengthening dollar, combined with an elusive India-US trade deal and record FPI exodus, rapidly eroded its value.

After starting the year at 85.64 against the greenback, the rupee consistently faced a decline, and ended up plunging past the psychological 90-mark in early December.

Within 15 sessions, the local currency further weakened to hit an all-time intraday low of 91.14 on Dec. 16. As of the close of market hours on Dec. 26, it stood at 89.86 against the dollar.

The decline in exports to the US—a direct consequence of the high import tariffs on India—also compounded the rupee's woes. The currency has slumped by 5% against the greenback on a year-to-date basis.

Amid the tariffs overhang, analysts have forecast a rocky start for the rupee in 2026. The currency may hit the 92-mark by March-end, according to Nomura and S&P Global Market Intelligence forecast.

Rupee's slump, however, has a silver lining. Indian exports can become more competitive due to a weaker currency, while India’s subdued inflation grants policymakers the flexibility to absorb higher import costs.

Despite the headwinds, India's economy remains on a firm footing, supported by a spurt in domestic consumption, low inflation and narrow current account deficit. The country cemented its position as the "world's fastest growing major economy", with an 8.2% GDP growth in the quarter ended September.