GDP grows, rupee falls.

"Beating estimates and marking a five-quarter high, India's Gross Domestic Product (GDP) grew 7.8% in the April-June quarter of FY26, data released by National Statistics Office showed." The nominal GDP grew by 8.8%. "The Centre's capital expenditure rose by 52% year-on-year in the first quarter, emerging as a key growth driver." ET. "Private consumer spending, which makes up 57% of GDP, rose 7% year-on-year (y-on-y) in April-June, compared to 6% in the previous quarter, as rural spending increased, and demand for durables and farm equipment such as tractors remained firm." Reuters. The narrow difference between real and nominal GDP is because of very low GDP deflator, which adjusts for inflation in reference to a base year  (Vajiram & Ravi). The y-on-y consumer price index (CPI) inflation fell to a low of 1.55% in July 2025. MoSPI. However, "India fiscal deficit for the first four months of this fiscal year through April-July stood at Rs 4.68 trillion, or 29.9% of annual estimates," higher than 17.2% in the same period last year. ET. Why is the fiscal deficit worse when economic growth is so high? Maybe because, "While the government's tax revenue does not necessarily grow at the same rate as the nominal GDP, they generally move in the same direction." MC. So, a disappointing nominal GDP growth along with high capital expenditure by the government could have resulted in a higher fiscal deficit. "The rupee dropped to 88.29 against the US dollar, breaching its prior lifetime low of 87.95 hit in February. The currency rebounded partially to trade at 88.12 against the dollar,..following dollar sales by the central bank, dealers said." "Foreign portfolio investors have sold $9.7 billion in Indian debt and equities this year." Mint. "The exporters body Federation of Indian Export Organisations on August 26 expressed serious concerns over high US tariffs on Indian goods and said that textiles and apparel manufacturers in Tirupur, Noida and Surat have 'halted production amid worsening cost competitiveness due to these steep duties'." "Think-tank Global Trade Research Initiative (GTRI) has earlier calculated that this could lead to product exports to the US falling from nearly $87 billion in 2024-25 to $49.6 billion this year." The Wire. India had foreign exchange reserves of $690.72 billion as of the week ended 22 August (ED) which seems adequate to defend the rupee, but the Reserve Bank of India (RBI) transferred a windfall dividend of Rs 2.69 trillion to the government this year (BS) rising from Rs 2.11 trillion in 2024 and Rs 874.16 billion in 2023. infomerics.com. Does the RBI have enough reserves to protect the rupee, if it continues falling, and monetise the fiscal deficit at the same time? We hope it knows what it's doing.