Despite the obvious impact of the war in Iran, the only visible blot in the official narrative of stellar economic growth has been the 11%–12% slide in the Indian rupee. According to official data, India’s real gross domestic product (GDP) grew 7.7% in the quarter ending March 2026, while the consumer price index (CPI) averaged under 4%. But the reality on the ground is vastly different.
Although few are speaking out openly, India’s middle class, which appears financially stable on the surface, is under immense internal pressure. Rising costs, higher equated monthly instalments (EMIs) and increased spending on health, education and lifestyle have shrunk household savings. Job insecurity in high-paying salaried segments, such as finance and information technology (IT), is also taking a quiet toll.
The war in Iran and the blockade of the Strait of Hormuz have rattled economies worldwide. Yet, the Indian rupee has depreciated more sharply than many of its peers, despite the Reserve Bank of India’s (RBI’s) strenuous efforts to arrest the slide through market intervention and support operations.
Whether it is the rupee’s weakness, the scramble to secure supplies of oil, gas and fertilisers, or the prospect of cost-push inflation, India’s predicament is largely self-inflicted and a result of policy complacency. A well-governed State anticipates risks, prepares contingency plans and builds resilience against multiple adverse scenarios. Unfortunately, India failed on both fronts: to plan adequately before the crisis as well as to respond swiftly, once it unfolded. These should have included policy measures to retain foreign capital and protect the rupee, as well as to maintain adequate strategic petroleum reserves, as done by China and Japan, to cushion the impact of a sudden spike in energy prices.
Instead, the combination of high capital gains taxes and double-digit rupee depreciation accelerated foreign portfolio investor (FPI) outflows in the wake of the Iran conflict. FPIs have pulled out over ₹2.25 lakh crore (about US$27bn–US$30bn-- billion) from Indian equities so far in 2026, exceeding the full-year outflow of ₹1.66 lakh crore recorded in 2025. Cumulative net outflows over the past 12 months have crossed US$39bn–US$40bn across market segments.
Growing anxiety among domestic investors, amplified by criticism on social media from influential government supporters, finally punctured the belief that domestic mutual funds and retail investors would provide a permanent bulwark against any FPI exodus. As the rupee slid to ₹96.5/US dollar in May 2026, the government belatedly recognised the need for policy intervention. Even so, its response has been limited to marginal adjustments.
A weak currency and a rising import bill quickly translate into higher inflation, squeezing household budgets across the income spectrum. Yet, there is surprisingly little public discussion of these everyday costs. India imports about 85% of its crude oil; 60% of its edible oils; and substantial quantities of pulses, fertilisers and electronic components. Every rupee of depreciation against the US dollar adds thousands of crores to the country's annual import bill, especially for energy.
Kitchen & Commute Pressure
The consequences are already visible in higher costs for fuel, cooking gas, food, travel and healthcare, steadily eroding purchasing power across income groups. For affluent Indians, this means costlier foreign holidays and overseas education for their children.
For the middle class, it translates into a tougher balancing act of servicing home-loan EMIs, while coping with rising expenses for healthcare, education and daily living.
Successive hikes in domestic and commercial LPG (liquefied petroleum gas) prices have impacted homes as well food prices at small eateries and street vendors. Laptops, tablets and smartphones, which are essential tools for students and freelancers, are 5%–10% more expensive as India remains dependent on imported electronic components. The pharma sector imports nearly 70% of active pharmaceutical ingredients (APIs) from China; while prices of essential medicines are capped, the cost of many non-scheduled drugs and vitamins has jumped 10%-15%, affecting seniors and chronic patients.
The cumulative effect is reduced discretionary spending, lower savings and rising financial stress. Counselling sessions at Moneylife Foundation reveal a sharp increase in reckless borrowing, often linked to stock-market speculation in the hope of quick gains.
Daily Commute Squeeze
After an initial panic over cooking gas supplies, the government has managed distribution and curbed hoarding, helping maintain social stability. But the economic cost has been substantial.
Petrol prices in Mumbai have risen from about ₹103.50/litre in June 2025 to over ₹111 by mid-2026, with diesel showing a similar increase. The result is higher commuting, transport and delivery costs, adding hundreds of rupees to monthly household budgets and disproportionately affecting low-income groups, daily wage-earners and small businesses.
The government has softened the immediate impact by requiring oil marketing companies (OMCs) to absorb part of the losses. However, these losses will, eventually, need to be recovered, making any significant reduction in fuel prices unlikely, even if global crude prices ease.
Flying Low
India's domestic aviation sector remains precariously placed. Liberalisation merely replaced a State monopoly with a succession of private duopolies, many of which collapsed after accumulating heavy losses. Since aircraft leases, spare parts and aviation turbine fuel (ATF) are dollar-denominated, currency depreciation is quickly passed on to passengers.
A Mumbai–Delhi economy return ticket that cost about ₹8,500–₹9,200 in June 2025 now costs roughly ₹11,800–₹13,400. Once ancillary travel expenses are added, the cost of flying has risen by 35%–45% in real terms.
Holiday Hit
International travel has become even more expensive because Indians pay not only higher travel costs but also the price of a weaker rupee. A seven-day European holiday package that now costs around ₹1.9 lakh–₹2.3 lakh/person was available 10%-20% cheaper last year. The combined effect of rupee depreciation and higher operating costs has increased the effective cost of overseas holidays by 15%–25%.
Not surprisingly, many families are postponing foreign travel or opting for domestic destinations instead. Summer holiday bookings are estimated to have fallen by 15%–20% year-on-year (y-o-y), closely tracking the rise in travel costs.
Ethanol Twist
A new twist in the food-fuel debate is the government’s aggressive push for ethanol blending. This diverts sugarcane and maize to ethanol production, even as India remains heavily dependent on imported fertilisers (bill exceeding US$27bn in 2025-26), edible oils and pulses which are all hit by Hormuz disruptions.
Keeping aside the controversy over impact on car engines, ethanol blending may offer some foreign exchange (forex) savings, but the policy risks swapping one problem for another: potential food shortages amid El Niño threats.
Even if the promised geopolitical de-escalation materialises soon, as indicated by US and Iran, economic relief for India will be staggered over the next two to three quarters.
Reports of a faltering monsoon, exacerbated by El Niño, have added a dangerous new dimension to the problems ordinary Indians must prepare for. Satellite imagery shows a dramatic early collapse in monsoon. The India meteorological department’s (IMD’s) seasonal forecast for June–September stands at 90% of the long-period average, with a 60% chance of deficient rains. Water cuts have already begun in cities like Mumbai, where reservoirs hover around 10%–11% of capacity and multiple regions have been facing intense heat-waves.
Yet, there are few signs of a comprehensive, coordinated government contingency plan beyond routine advisories and band aids. As water shortages and extreme heat loom larger, ordinary Indians, already struggling with economic hardship, are likely to face yet another test of resilience. Policy-makers need to act swiftly, to build buffers in energy, agriculture and imports and re-think the impact of depleting green cover. Without immediate action, the silent squeeze we are facing could turn into widespread hardship with a long-term impact on India’s economy.
The rupee should be allowed to slide to where it is optimal level as decided by the markets. I don't think RBI or the Govt of India should interfere -- at all. Anyway, at this rate, I doubt fiat system will last as long as America is printing. It's a rigged system, and a joke. It's only 50+ or so odd years fiat has been in existence. I suspect its days are numbered. Back to the gold standard or a more robust system (blockchains? decentralised currency?). Anything that has central agency should be abolished and eliminated forever. The role of central agencies is -- law & order and taxes. That's it. Nothing else.
I read somewhere thatcher are only the rich and the poor and no middle class. That is what the Modi government left us for fourteen years in a row. We have many things to weep. We have only claims. The prices are rising for all the goods making the life difficult for us.
Modi does not have the time or the interest to address India's problems.
He is busy visiting as many countries and as many group meetings as he can.
After all, he is the Vishwaguru, the world cannot function without his presence at important events.
Once again, only after India has stumbled into a mini foreign-exchange crisis, is the government contemplating reforms. According to news reports, New Delhi is preparing measures to support the rupee and finance a widening...
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He is busy visiting as many countries and as many group meetings as he can.
After all, he is the Vishwaguru, the world cannot function without his presence at important events.