Hey folks, Pratham here.

Welcome to Paradox Weekly, a Masters' Union newsletter, where we break down the ideas, trends, and contradictions shaping business today.

Last week, the rupee crossed 90 per dollar for the first time in history. Asia's worst performing currency in 2025.

Down 6.5% this year alone.

It’s strange because India has $687 billion in forex reserves.
The fifth largest in the world. That’s enough to cover 11 months of imports.

So why can't we stop the fall?

Because foreign investors have pulled out $18.4 billion from Indian equities in 2025. The worst year on record.

Plus their ownership in Indian markets has fallen to 16.9%, the lowest in 15 years.

When foreign capital leaves faster than reserves can absorb, the rupee falls.
That's the math.

When the rupee slides, I see two reactions.

The first: panic.

Middle-class parents calculating what their kid's US tuition now costs in rupees. Importers watching their margins evaporate overnight.

Headlines screaming about RBI failure.

The second: calm reassurance.

We have massive reserves. RBI is managing volatility. A weaker rupee helps exports. This is normal currency adjustment.

Here's my problem with both.

The panickers assume RBI should be defending a number.

The reassurers assume RBI can defend any number it wants.

Neither understands what reserves actually do.

Yup this is happening. From Masters’ Union Shark Tank to being a Shark on Shark Tank India.

What a journey.

Can’t wait for you to see the innovation of today’s Indian students!

Cohort of 2025’s graduation with none other than the hitman of our country.

If you missed it, you can watch it here: https://www.youtube.com/watch?v=3Pttvxh11tc

Let me teach you something called the impossible trinity.

Here's the idea: a country can only have two of these three things at once.

Free capital flows.
Independent monetary policy.
A stable exchange rate.

Pick any two. The third becomes impossible.

America chose free capital flows and independent monetary policy.
The dollar floats wherever markets take it.

China chose a stable exchange rate and independent monetary policy.
Capital controls are strict. You can't freely move money in or out.

Something has to give.

When the US Fed raised rates aggressively in 2022-2024, India faced a choice.

Match their rate hikes to stop capital flight (surrendering monetary independence).
Let the rupee fall (accepting currency weakness).
Or burn reserves defending an impossible level.

We've been doing option three.
And it's getting expensive.

Pull up a chart of the rupee since 2005:

That's 103% depreciation in twenty years.
An average of 3.6% annually.

But to be fair, crisis management has improved.

2008 saw a 32% crash.
2013 saw 15% in three months.
COVID-19 in 2020 saw just 7%.

Because we learned.
We built reserves.
We created frameworks.

Raghuram Rajan walked into the 2013 crisis as a new RBI governor.
On his first day, he announced the FCNR swap scheme.
Banks could swap foreign deposits at 3.5% instead of market rates of 7-8%.

Expected to raise $10 billion.
It raised $26 billion.
The rupee stabilized. RBI made money on the deal.

What's fascinating about the last decade is how differently each RBI governor approached currency management.

Rajan (2013-2016) believed in structural confidence. Build reserves, target inflation, let markets know you're credible. Don't fight every battle.

Urjit Patel (2016-2018) was the technician. Successfully managed the FCNR redemption of $26 billion through pre-arranged forward coverage. No drama. Then resigned suddenly over government pressure on reserve transfers. First RBI governor to quit mid-term since 1935.

Shaktikanta Das (2018-2024) was the interventionist. Built reserves to record highs. Achieved the lowest rupee volatility in two decades. But the IMF eventually reclassified India's exchange rate regime from "floating" to "stabilized arrangement." Basically saying: you're not smoothing volatility anymore, you're defending levels.

Sanjay Malhotra (December 2024-present) has signaled a shift. "Two-way flexibility." Less intervention. The rupee fell 3% in his first three months versus 1.3% in Das's final months.

TLDR: The impossible trinity doesn't care who's in charge.

India's $224 billion IT industry earns 60-70% of revenue from US clients.

Every rupee of depreciation is pure profit margin expansion.

TCS showed 0.6% growth in dollar terms last quarter but 3.7% in rupees.

Pharmaceutical exports hit $30 billion.

Textile exports hit $16 billion.

Both growing, partly because a weaker currency makes Indian goods cheaper globally.

But the losers face more immediate pain.

India imports 85-88% of its crude oil.
That's a $96-100 billion annual bill.

Every rupee of depreciation directly increases the cost of fuel, transport, and manufacturing.

Companies with dollar debt see repayment burdens swell.

India has $190 billion in external commercial borrowings.

Bloomberg reports $79 billion remains unhedged.

If depreciation accelerates, those companies will scramble for dollar cover, making the fall worse.

So who wins the net calculation?
It's genuinely unclear. That's the honest answer.

Here's the part that bothers me about the coverage.

Reserves buy time but unfortunately don't change fundamentals.

India's fundamentals:

We're not Turkey.
We're not 1997 Thailand.
We're not even 1991 India, when we had just two weeks of import cover and had to physically ship gold to London.

But we also can't fight global capital flows that dwarf our reserves.

The forex market trades $7.5 trillion daily.

India's entire reserve stockpile is less than a single day's global turnover.

Here's my read

Two things are true.

India's external position is solid. Reserves cover 11 months of imports. Debt ratios are healthy. We're not facing a crisis.

And the rupee will keep depreciating. Because we have higher inflation than the US. Because we run trade deficits. Because that's what currencies do when fundamentals diverge.

The 3.6% annual average is the pressure valve that keeps the impossible trinity from exploding.

What bothers me is the conversation.

We panic when the rupee hits round numbers.

We celebrate when reserves hit round numbers.

We miss the question: is India using the time that reserves buy to fix the fundamentals that cause depreciation?

Because reserves don't solve trade deficits, oil dependence or export competitiveness.

It’s simply buying time. 

And time, eventually, runs out.

Hit reply: What would fix India's structural depreciation?
Not defend against it but actually fix it.

I read every email.

Until next week,
Pratham