Foreign Trade Alert | Indian Market Risks Continue to Escalate: Rupee Under Pressure, Capital Outflows, Corporate Bad Debts
“The Indian rupee is depreciating sharply amid capital outflows and a record trade deficit with China, while a Chinese firm recently wrote off $14 million in bad debt from Indian clients. Exporters should exercise caution on Indian orders due to rising payment, currency, and liquidity risks.”
Recently, a series of signals from the Indian market have put foreign trade enterprises on high alert. From the continuous depreciation of the rupee to large-scale foreign capital outflows, from major corporate bad debts to a "cash crunch" in small and medium-sized cities, systemic risks in the Indian market are being released across multiple dimensions simultaneously.
I. Rupee Continues to Slide, Among Asia's Worst-Performing Currencies
As the world's third-largest crude oil importer, India relies on the Middle East for over 60% of its oil. Ongoing geopolitical conflicts have sharply driven up its energy import costs. Analysts at MUFG Bank point out that the Indian rupee is one of the worst-performing major currencies in Asia in 2026, having depreciated to above 96 against the US dollar, hitting a record low, with cumulative depreciation of about 5.5% since the outbreak of the Iran conflict in late February.
The Reserve Bank of India (RBI) has taken multiple measures to intervene in the foreign exchange market. On May 16, the Indian government issued an order to classify silver bars and semi-finished silver products with 99.9% purity or higher as "restricted" items, requiring prior government approval for imports. This was the second precious metal import restriction introduced within a week. At the same time, RBI Governor Malhotra made a rare public statement, saying the rupee "may be undervalued" and explicitly stating that all necessary measures would be taken to maintain order in the foreign exchange market.
However, these measures have not fundamentally reversed the trend. By the end of May, India's foreign exchange reserves had fallen from a pre-conflict peak of $728.5 billion to approximately $682.3 billion, a cumulative decrease of about $46 billion. Against the backdrop of tightening global risk appetite, the downward pressure on the rupee is unlikely to ease significantly in the short term.
II. Foreign Capital Accelerates Outflows, Stock Market Slips in Global Ranking
Behind the rupee's depreciation lies sustained large-scale capital outflows. Data shows that in the first four months of 2026, foreign portfolio investors (FPIs) withdrew nearly $20-21 billion from Indian equities, already exceeding the full-year record high of 2025. In March alone, outflows reached approximately 1.17 trillion rupees, followed by another 600 billion rupees in April.
Combined with global capital shifting toward AI-related sectors, India's stock market ranking has come under pressure. Over the past two weeks, driven by technology stocks, the market capitalizations of South Korea and Taiwan, China surpassed that of India, pushing India down to seventh place globally.
In its April bulletin, the RBI analyzed that foreign outflows were mainly driven by global trade tensions, uncertainty over a US-India trade agreement, and heightened global risk aversion following the outbreak of the Middle East conflict. India's Finance Minister also acknowledged that capital outflows and exchange rate volatility have formed a self-reinforcing cycle — rupee depreciation reduces returns denominated in foreign currencies, triggering more outflows, which in turn exacerbates exchange rate pressure.
III. Trade Deficit Hits a Record High: Structural Contradictions in China-India Trade
While foreign capital continues to flow out, India's trade deficit is widening. According to official Indian government data, bilateral goods trade between China and India reached $151.1 billion in the 2025-2026 fiscal year (India's fiscal year runs from April to March), with China becoming India's largest trading partner again after four years. Meanwhile, India's trade deficit with China surged to a record $112.1 billion.
Behind this deficit lies India's deep dependence on China's supply chain. India's pharmaceutical industry relies on China for over 90% of its active pharmaceutical ingredients (APIs); 93% of rare earth magnets used in the automotive industry come from China; and core intermediate goods such as mobile phone components, electronic components, and machinery equipment are also highly dependent on Chinese imports. Despite the Indian government's push for "Make in India," the rigid demand for Chinese imports remains difficult to replace in the short term.
Even as Prime Minister Modi traveled to five European countries seeking alternative supply chains, an official from India's Ministry of Commerce and Industry had to publicly acknowledge: "India will not decouple from China, but will focus on building a resilient supply chain." Chinese customs data shows that in 2025, China's exports to India grew by about 13.4% year-on-year, making India China's 11th largest trading partner.
IV. A Wake-Up Call from a Chinese Firm's Huge Bad Debt: 140 Million Yuan Uncollectible
In February 2026, a company announcement from Dalian Heavy Industry (stock code: 002204) sent shockwaves through the market. The company disclosed that it had fully provided for bad debts totaling approximately 140 million yuan in accounts receivable from two Indian clients, Tuticorin Coal Terminal Pvt. Ltd and West Quay Multiport Private Limited, due to the clients' credit issues and failure to pay on time.
A closer look at the details reveals a classic "minefield" experience: as early as 2019, Dalian Heavy Industry delivered port bulk material handling systems and related equipment to two Indian clients. The equipment was accepted and put into normal operation. During the credit period, the clients began to delay payment of the balance and warranty retainage using excuses such as "working capital adjustments" and "pending foreign exchange approvals." The end users were reportedly quite satisfied with the equipment's performance, yet they refused to fulfill payment obligations. Dalian Heavy Industry initiated arbitration proceedings and won. However, when the company sought enforcement in Indian courts, both Indian clients simultaneously applied for bankruptcy restructuring in the High Court, freezing the arbitration award. As a result, the 140 million yuan in accounts receivable had to be fully written off as bad debt.
This case exposes three major risks in the Indian market: First, credit awareness among clients varies greatly; some companies delay payments by citing "quality issues" or "delayed delivery," even after equipment has been operating normally for years. Second, although India has a well-established legal system, its bankruptcy regime objectively provides a channel for "legal default" — after losing in arbitration, companies can apply for bankruptcy restructuring, rendering the arbitration award unenforceable. Third, even with a favorable international arbitration award, enforcement through Indian courts is lengthy and fraught with uncertainty, often consuming considerable time and resources with unpredictable outcomes.
Dalian Heavy Industry's experience is not unique. There have been numerous similar cases of Chinese companies "stepping on landmines" in India.
V. India Intensifies Trade Remedies Against China, Anti-Dumping Probes Continue
As bilateral trade expands, India's trade remedy measures against China are also increasing. On May 7, 2026, India's Directorate General of Trade Remedies (DGTR) issued a final positive finding in the first sunset review of anti-dumping duties on phthalic anhydride originating in China, recommending that the duty be maintained for another five years at the rate of $40.08 per ton. Previously, India had launched anti-dumping investigations against various Chinese products, including 4,4′-diaminostilbene-2,2′-disulfonic acid and liquefied natural gas storage tanks, with duties ranging from 45% to a margin of difference. In addition, in December 2025, India's Ministry of Finance extended the anti-dumping measures on polyethylene terephthalate (PET) resin until June 2026.
Notably, Chinese exporters are actively reducing their dependence on a single market. Taking phthalic anhydride as an example, India's share of China's total exports fell from 9.1% for full-year 2025 to 6.4% in the first quarter of 2026. Chinese companies are accelerating their export focus toward core markets such as Vietnam, Pakistan, and Saudi Arabia, as well as rapidly rising emerging destinations like Brazil and Kenya.
VI. "Cash Crunch" in Small and Medium-Sized Cities, Liquidity Risks Emerge
According to a report from CCTV Finance citing Indian media, many tier-2 and tier-3 cities in India have recently experienced a "cash crunch," making it difficult for local residents to withdraw cash. The Confederation of ATM Industry of India (CATMi) stated that the main reason is that major banks are prioritizing cash allocation to large cities. Industry data shows that cash demand for ATMs across India in March and April this year was 940 billion rupees each month, while actual supply was 610 billion rupees and 540 billion rupees respectively — supply gaps of 35% and 42.5%.
This liquidity tightness has already caused actual losses to the industry. CATMi said that if ATMs cannot dispense cash, transaction fees cannot be collected, leading to industry losses of up to 10 billion rupees (approximately 70.88 million yuan). If the cash shortage in small and medium-sized cities continues, related operations will face contraction or even shutdown. In recent years, the number of ATMs in India has been declining, from more than 253,000 in fiscal year 2023 to about 251,000 in fiscal year 2024, with reductions mainly in rural and peri-urban areas.
VII. Risk Warnings for Foreign Trade Enterprises
Given the multiple risk signals currently emerging from the Indian market, export enterprises should focus on the following key risk points:
1.Exchange rate risk: The rupee has depreciated by more than 6% this year, and downward pressure is unlikely to ease in the short term. Exporters should strengthen exchange rate risk management, use tools such as forward settlement and options to lock in costs, and avoid currency losses eroding profits.
2.Payment risk: The 140 million yuan bad debt case of Dalian Heavy Industry is a wake-up call. For Indian orders, it is advisable to demand higher advance payments (e.g., 30%-50%), be cautious in accepting long credit periods or post-delivery payment terms, and conduct credit checks on customers through institutions such as Sinosure. Once a payment becomes overdue, take early action to preserve claims and avoid falling into the trap of the counterparty's bankruptcy restructuring proceedings.
3.Compliance risk: India's anti-dumping investigations against China are intensifying, covering chemicals, steel, machinery, and other sectors. Before exporting relevant categories, companies should verify whether anti-dumping duties or safeguard measures apply.
4.Liquidity risk: The cash crunch in small and medium-sized cities indicates that payment capacity at the local level is uncertain. If the buyer is located in a tier-2 or tier-3 city, be more cautious in assessing their financial situation.
5.Long-term strategy: As the Dalian Heavy Industry case shows, it is not uncommon for Indian clients to refuse payment of final balances citing "quality issues" or "delayed delivery." It is recommended that enterprises clearly define dispute resolution clauses at the contract negotiation stage, choose arbitration venues and governing laws favorable to them, and fully evaluate the counterparty's asset position. Relying solely on an arbitration award does not guarantee successful recovery.
Currently, the Indian market is being hit by multiple overlapping factors: rupee depreciation, capital outflows, widening trade deficits, and liquidity pressures. While exploring this important market, foreign trade enterprises must maintain strong risk awareness and a prudent approach — after all, behind a "big order" may lurk a "big trap." Rather than consuming resources on high risks and bad debts, it is far wis er to approach Indian orders with rational caution. When risk and reward coexist, prudent decision-making and thorough due diligence are far more important than chasing debts after the fact.
