The depreciation of the rupee erased some of the gains that India would have earned from the fall of international oil prices to pre-Ukraine war levels.
The depreciation of the rupee erased some of the gains that India would have earned from the fall of international oil prices to pre-Ukraine war levels.
The Indian rupee is close to 80 to a US dollar, with crude oil to make electronic goods as well as education abroad and foreign travel more expensive, while inflationary conditions may worsen.
The primary and immediate impact of the rupee depreciation falls on the importers, who will have to pay more for the same quantity and price. However, it is a boon for the exporters as they get more rupees against the dollar.
The depreciation of the rupee has erased some of the gains that India would have earned if international oil and fuel prices fell to pre-Ukraine war levels.
India is 85% dependent on foreign oil to meet its fuel needs like petrol, diesel and jet fuel.
The rupee, which closed at an all-time low of 79.99 on the US dollar on Thursday, ended 7 paise higher at 79.92 in early trade on Friday.
The basket of Indian imports includes crude oil, coal, plastic materials, chemicals, electronic goods, vegetable oils, fertilisers, machinery, gold, pearls, precious and semi-precious stones and iron and steel.
Import
Importers need to buy US dollars to pay for imported goods. With the rupee depreciating, importing goods will become costlier; Not only oil but also mobile phones, some cars and appliances are likely to be more expensive.
A depreciation of the rupee against the US dollar would mean that foreign education has become even more expensive. Not only because of the extra rupee for every dollar charged by foreign institutions as fees, education loans have also become costlier after the RBI hiked interest rates.
foreign travel
With the decline in COVID-19 cases, the journey of revenge for work and leisure has begun. But, they have become more expensive now.
Remittance
However, non-resident Indians (NRIs) who remit money back home will send more in the value of Rs. According to the latest data, the country’s imports in June increased by 57.55 percent to $ 66.31 billion from a year ago.
The trade trade deficit was estimated at $26.18 billion in June 2022 from $9.60 billion in June 2021, an increase of 172.72%.
Crude oil imports nearly doubled to $21.3 billion in June. Coal and coke imports doubled in the month to $6.76 billion, against $1.88 billion in June 2021.
It is widely expected that the Reserve Bank may hike the key interest rate for the third consecutive day as retail inflation continues to reign above 7%, well above the comfort level of 6%.
To worsen the situation, the Wholesale Price Based Index (WPI) also remained above 15%.
“The cost of all imports, including edible oil, will increase. However, since the prices of edible oil are falling in the international market, the depreciation of the rupee will not have much impact,” said BV Mehta, executive director, Solvent Extractors Association. India (sea). In the oil year 2020-21 ending October, India imported a record 1.17 lakh crore edible oils.
Imports of vegetable oils stood at $1.81 billion in June this year, an increase of 26.52 per cent over the same month in 2021.
In case of fertilisers, the government subsidy bill is expected to increase to Rs 2.5 lakh crore this fiscal as against Rs 1.62 lakh crore in the previous year due to higher prices of key agricultural inputs in global markets with depreciation of Rs.
Ajay Sahai, director general of FIEO, the apex body of exporters, said the rupee touching 80 against the US dollar would hit India’s import bill and make inflation a more difficult task.
“The prices of imported intermediate goods will rise and so will the manufacturing costs of businesses, who will pass that cost on to consumers, thereby raising the cost of the goods.
“Those who want to send their children abroad for education will face hardship as the depreciation will become costly for them,” Sahai said.
A Finance Ministry report has warned that India’s current account deficit is likely to worsen in the current financial year due to costlier imports and lesser exports. The CAD stood at 1.2 per cent of GDP in 2021-22, mainly driven by an increase in the trade deficit.
“Depreciation will push inflation… the price of electronics goods will be affected. Already due to supply chain shocks in China, electronic components, especially controllers/ICs, prices have almost tripled in the past two years and rapidly Prices due to depreciation will increase further in all imported components,” said Vishal Mehta, proprietor of Mehta Power Solutions.