The Indian rupee fell to record low of 83.075 against the US dollar today around 9:15 am. Touching another lifetime low, the Indian rupee has been more volatile than ever, touching new lows every now and then. Before this, on October 19, 2022 too, Indian rupee dropped as much as 71 paise to hit a low of 83 against the US dollar, following consistent strengthening of the greenback. As US dollar strengthens, people are now worried about the impact of this weakening rupee.
According to Aditya Shah, Founder, JST Investments, “India imports many of its commodities i.e., buys them in Dollar. Nearly 80 per cent of India's crude oil needs are met by imports. As the rupee continues to depreciate, the Current Account Deficit (CAD) will continue to rise to record levels, pushing inflation in the economy.”
In June, Chief Economic Advisor V Anantha Nageswaran also said that this year, India’s main challenges will be of managing a sustainably high growth rate, managing moderate inflation, keeping the fiscal deficit balance and also ensuring that the external value of the Indian rupee remains stable.
Since India is largely a consumption-driven economy, the weakening rupee and high inflation rates, are expected to impact not just growth levels but even the common person.
Crude oil and natural gas to get expensive
The Indian rupee hitting a record low of 83.075 would mean a massive impact on crude oil and natural gas prices. As mentioned before, since India’s nearly 80 per cent crude oil needs are met by imports, the weakening currency is likely to pass the impact on the common person as the cost of domestic fuel may go up. Further, with expectations of a global slowdown, the impact is likely to get worse.
Cost of living to rise
Expensive import of raw materials like crude oil, which form the end consumption products like petrol and diesel, could also mean increased transportation costs, further adding to the overall price rise.
Aditya Shah adds, “As per India ratings, India’s CAD is expected to hit a 36-quarter high in the June quarter. As per the agency, CAD in June quarter may come in at 3.4 per cent of GDP, or $28.4 billion. As fuel prices continue to move up the cost of living starts to move up thereby pushing inflation into the system. The RBI has spent $21Billion to smoothen the fall. However, it cannot stop the fall.”
Further, some experts also believe that if companies are not able to entirely absorb the inflationary price rise, the impact would pass on to the consumers in different ways. These companies, especially those offering fast-moving consumer goods (FMCG) may then either decrease the size of their offerings or simply increase the price of their end product(s).
Foreign education cost to rise
The fall in the value of Indian rupee will also directly impact students who are studying abroad and their parents. On this, Shah explains, “As the fees for foreign education is paid in dollars, the rupee depreciation will hit these foreign education-bound students the highest.” This would also mean parents and/or students shelling out more rupees to pay for the same amount of dollars. Additionally, this may even have an impact on foreign trips, which would also get expensive.
Shah adds, “This strong hike in interest rates from the US Fed is one of the major reasons why the US dollar is continuing to be strong. But the Indian economy is strong with record Forex reserves. The rupee depreciation is a story of a strong dollar. As the US Fed continues to hike rates aggressively, all currencies are depreciating. In fact, Rupee is one of the best-performing EM currencies.”
