Not just fuel, rising rupee will make electronics, pearls and cooking oil costlier too
- Weak rupee puts pressure on importers who would have to pay more in dollars for the transaction, which thereby will burden Indian households.
- Rupee fall and increase in import bill to hammer the already heightened inflation in the country.
- Further, the rupee is expected to remain volatile due to several macro events like US retail sales and industrial production data.
AdvertisementAs the rupee continues to lose value against the US Dollar, from medicines to cooking oil to electronics, everything will cost more..
India is a net importer. Since most international trade takes place in USD – which is getting stronger day by day – importers have to shell out more rupees to buy the same quantity. This eventually increases the local prices of these imported commodities.
Simply put, suppose if you were paying ₹160 per litre for edible oil, it may get costlier to ₹170 or more.
Prices of petroleum products will be most affected as India imports 80% of its oil needs and the rupee fall may make it more costly than it already is. Besides, oil prices have also been rising after the Russia Ukraine war disrupted the global supply chain.
India’s imports exceed exports by over $87 billion (about ₹6.87 lakh crore) in 2021-22. This is ad news when the rupee is falling drastically as it increases import bills.
Electronic goods, machinery, chemicals, gold, pearls form the biggest chunk of imported goods by India.
While the Indian central bank is taking measures like allowing international trade in rupee, it will not drastically change things in the near term. This is because countries with trade surplus with India like China from whom we import huge amounts of electronics goods would be interested in transacting through the US dollar.
Rupee fall, rise in import bill will mess up India’s inflation economics
|Top commodities imported by India||Expenditure|
|Petroleum products||$82.7 bln|
|Electronic goods||$52.6 bln|
|Machinery: electrical & non-electrical||$31.8 bln|
|Organic & inorganic chemicals||$19.8 bln|
|Pearls, precious & semi-precious stones||$18.9 bln|
|Other commodities||$18.3 bln|
|Transport equipment||$17.9 bln|
|Coal, cokes & briquettes||$16.3 bln|
|Artificial resins, plastic materials etc||$13.5 bln|
|Iron & steel||$12.1 bln|
|Non-ferrous metals||$11.8 bln|
|Vegetable oil||$11.1 bln|
|Chemical material & pr||$8.4 bln|
|Fertilizers crude & manu||$7.6 bln|
|Medicines & pharma||$7.0 bln|
|Metalliferous ores & other minerals||$4.6 bln|
|Professional instrument, optical goods etc||$4.5 bln|
|Wood & wood products||$4.4 bln|
|Machine tools||$3.1 bln|
Upcoming macro events to keep rupee movement volatile
Rupee has been extremely volatile this year and has now touched its psychological level of 80 amid fear of interest rate hikes across central banks and the continuous outflow of liquidity from the markets.
The central bank is trying to keep the currency under control by allowing international trade in rupees, but would not be enough.
Advertisement“Rupee fell for the fourth successive session and fell to fresh all-time lows as the dollar rose sharply against its major crosses after inflation in the US. The greenback rose after data showed US inflation, already at four-decade highs, accelerated even further,” said a report by Motilal Oswal.
Further, the rupee is not expected to cool off sooner as macro events have lined up.
Analysts say today, focus will be on the retail sales and industrial production number from the US. Better-than-expected economic data could extend gains for the dollar.
“All eyes would now be on the European Central Bank meeting lined up next week and that will provide further cues about the rupee-dollar exchange rate. Considering the macroeconomic backdrop, the Indian rupee has its eyes set on the 81 to the dollar mark in the near term,” said Sugandha Sachdeva, vice president - commodity and currency research at Religare Broking.
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