India’s currency rate not justified by its fundamentals, and it has a lot to do with AI
India's Chief Economic Adviser, V Anantha Nageswaran, stated that the Indian rupee's exchange rate is not justified by the country's strong economic fundamentals, and its depreciation is linked to AI-driven capital flows. Nageswaran argued that India's approach to AI differs from the global narrative, focusing on demand and application rather than hyper-scale data centre construction.
India's currency rate is not justified by its fundamentals, according to Chief Economic Adviser V Anantha Nageswaran. Despite strong GDP growth, moderate inflation, and a contained current account deficit, the rupee has depreciated by over 13% against the dollar in the past two years. Nageswaran attributes this to AI-driven capital flows, with money flowing towards dollar assets and away from countries not central to AI investment. India is not a beneficiary of the AI narrative as it is not pursuing hyper-scale data centre construction and chip-intensive infrastructure investment. The economist notes that India's services export model has evolved, with Global Capability Centres (GCCs) hosting around 1,800 centres in India. Nageswaran believes that the rupee's current level reflects a distorted global flow environment due to AI-driven capital concentration in the US. When the AI cycle turns, the gap between the rupee's value and India's strong fundamentals will close.
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