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Corporate Foreign Exchange Risk in India: Firm-level Evidence and Some Policy Implications

Author

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  • Rohit Goel

    (Rohit Goel is a Visiting Fellow at the National Council of Applied Economic Research (NCAER), New Delhi, India, and is the Head of Global Macro, Breakout Capital Partners, LP, New York, USA. E-mail: RGoel@breakout-capital.com)

  • Swapnanil SenGupta

    (Swapnanil SenGupta (corresponding author) is at the Department of Economics, Goethe University Frankfurt, Germany. E-mail: Sengupta@wiwi.uni-frankfurt.de)

  • Udaibir Saran Das

    (Udaibir Saran Das is a Visiting Professor at NCAER, New Delhi, India. E-mail: udas@ncaer.org)

Abstract

As India’s economy becomes more integrated with global capital markets, the foreign exchange (FX) exposure of non-financial corporations deserves closer scrutiny. This article presents the first firm-level empirical study of foreign-currency borrowing by Indian non-financial corporations, using a matched panel of 38,589 firms from 2009 to 2023. Using local projections, we estimate how changes in balance-sheet fundamentals—leverage, export intensity, profitability, asset returns and the interest coverage ratio—translate into different forms of foreign borrowing. We find that when leverage increases and export intensity rises, firms raise foreign-currency borrowing, whereas weakening profitability is associated with lower foreign borrowing; responses vary by instrument and by firm type. State-owned enterprises (SOEs) and small and medium-sized enterprises (SMEs) appear particularly vulnerable, often increasing FX exposure when fundamentals deteriorate. India ranks mid-table on corporate dollarisation but near the bottom on hedge ratios. A stress test that simulates a 20 per cent rupee depreciation shows that 12 per cent of firms have an interest coverage ratio below one, revealing hidden vulnerabilities. The findings suggest the need for granular FX exposure disclosure, calibrated hedge norms and differentiated prudential oversight. As India pursues its 2,047 growth ambitions, effective FX risk management is a core pillar of macroeconomic and financial stability. JEL Codes: F31, G15, G32, O16

Suggested Citation

  • Rohit Goel & Swapnanil SenGupta & Udaibir Saran Das, 2025. "Corporate Foreign Exchange Risk in India: Firm-level Evidence and Some Policy Implications," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 19(2), pages 131-186, November.
  • Handle: RePEc:sae:mareco:v:19:y:2025:i:2:p:131-186
    DOI: 10.1177/00252921251401022
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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