De-dollarisation is distant, but can India still gain in the long run?

Global de-dollarisation, the process of reducing reliance on the US dollar in global trade, finance, and reserves, is gaining momentum due to several geopolitical, economic, and structural factors. In such a scenario, international capital flows are expected to pivot towards non-USD assets. 

This shift presents India with a unique opportunity to position itself as a large, growing, and fiscally stable economy, potentially triggering a virtuous cycle. “As global investors diversify away from dollar-denominated assets, India stands to attract substantial capital inflows, which would further bolster its fiscal strength and reinforce its investment appeal,” says Gopal Jain, managing partner at Gaja Capital.

But is this imminent? There's a very long way to go, say analysts.

"India stands at a pivotal juncture where global de-dollarisation trends could fundamentally transform its economic landscape, particularly benefiting the private equity and alternative investments sector. While India has officially maintained that de-dollarisation is not its active policy, the country is strategically positioning itself to capitalise on shifting global financial dynamics that could reverse decades of currency headwinds (the falling value of the Indian rupee) for foreign investors," says Jain.

Despite official statements that "de-dollarisation is neither our policy nor strategy," India is actively diversifying its trade settlement mechanisms. "The Reserve Bank of India has established frameworks enabling international trade settlements in Indian rupees, allowing bilateral trade with 19 countries, including Russia, Bangladesh, and the U.A.E. This infrastructure marks a significant departure from traditional dollar-denominated trade, with India's bilateral trade with Russia alone reaching $45 billion between April 2022 and February 2023," Jain adds.

A painful history 

For private equity firms investing in India, currency depreciation has been a persistent challenge. The rupee has depreciated from 32.43 per dollar in 1995 to 86.83 in 2025, averaging 3.34% annually. A PwC analysis noted that while the Chinese renminbi appreciated 26% between 2000 and 2013, the Indian rupee depreciated 42%.

Jain says, "Currency depreciation stems from fiscal stability factors such as capital flows, trade balances, and macroeconomic discipline, not dollar dominance alone. De-dollarisation can indirectly reduce depreciation by improving appetite for INR assets, strengthening fiscal stability and mitigating volatility—an outcome favourable for private equity investors."

BRICS signals a shift

The BRICS+ summit in Kazan brought this shift into focus. Member countries agreed to promote local currency usage and build new payment systems. India remains cautious about giving up the dollar entirely, but the message is clear: the global system is ready for alternatives.

At the July 2025 BRICS summit in Brazil, member nations stressed they weren’t looking to replace the dollar, but rather build backup systems that make trade more inclusive. In contrast, U.S. President Donald Trump issued a sharp warning, threatening 10% tariffs on BRICS nations, including India, if they move away from the dollar.

Rupee’s tiny global role

India now ranks as the fourth-largest economy globally by nominal GDP, valued at around $4.19 trillion, roughly 4.4% of the world’s total. Yet, the rupee still plays a minor role in global foreign exchange (FX) markets. "The dollar dominates with an 85% share of daily FX transactions, while the INR’s share is estimated to be less than 2%, despite India’s larger GDP than the U.K., whose pound accounts for 13% of global foreign exchange turnover,” Jain says.

Moreover, as part of crude oil trade—valued at over $4 trillion annually—begins to decouple from the dollar, U.S. dominance over global payments is slipping. But still, the dollar holds 60% of global reserves and is used in 70% of trade, and has a monopoly.

"This disparity underscores the gap between India’s economic weight and the international usage of its currency. As India continues to grow aelnd integrate, INR is well-positioned to become a global reserve currency. Achieving this will require progress in financial market depth, convertibility, and trade invoicing practices. At the very least, displacing the pound in foreign exchange share is a plausible scenario and should be a strategic priority for India," Jain explains.

Can India seize the moment?

Apoorva Javadekar, chief economist, Muthoot FinCorp Ltd, says, "Around 85% of India's international trade is dollarised, and it is not easy to unilaterally write non-dollar contracts when the rest of the partners are using dollars to settle the trade. Hence, I do not think that the de-dollarisation wave is strong enough to displace the dollar's prominence either in currency or trade markets."

"However, this is also the time when trade partners are more willing to write alternative trade settlement contracts, especially those countries seeking to diversify their dollar asset holdings, and India should not let this opportunity pass by. It is not about the displacement of the dollar, but creating potential alternatives in the short term to the dollar to minimise the world's vulnerability to one dominant currency, namely, the U.S.," adds Javadekar.

As the world slowly moves away from using the dollar, India has a chance to attract more foreign investments. This shift could reduce currency-related problems and boost India's position in global trade and finance.