The Indian rupee nearing 80 to a US dollar will make imports of items from crude oil to electronic goods, overseas education and foreign travel costlier while raising fears that the inflation situation could worsen.
The primary and immediate impact of a depreciating rupee is on the importers who will have to shell out more for the same quantity and price.
However, it is a boon for the exporters as they receive more rupees in exchange for dollars.
The rupee depreciation has wiped away some of the gains that would have accrued to India from international oil and fuel prices dropping to pre-Ukraine war levels.
India is 85 per cent dependent on foreign oil to meet its needs for fuels, such as petrol, diesel and jet fuel.
The rupee, which on july 14 closed at an all-time low of Rs 79.99 to a US dollar, appreciated 7 paise to 79.92 in early trade on july 15 .
The basket of Indian imports includes crude oil, coal, plastic material, chemicals, electronic goods, vegetable oil, fertiliser, machinery, gold, pearls, precious and semi-precious stones, and iron and steel.
Here is how a depreciating rupee is likely to impact spending: Imports: Importers need to buy US dollars to pay for imported items.
With the dip in the rupee, importing items will get more expensive.
Not just oil but electronic items, such as mobile phones, some cars and appliances, are likely to get expensive.
Foreign education: The rupee losing value against the US dollar would mean foreign education just became more expensive.
Not just having to shell out more rupees for every dollar that the foreign institutions charge as fees, education loans too have become costlier following the interest rate hikes by the RBI.
Foreign travel: With the COVID-19 cases declining, there has been revenge travel for work and leisure.
But, these have now just become more expensive.
Remittances: However, non-resident Indians (NRIs) who send money back home will end up sending more in the rupee value.
As per the latest data, the country's imports expanded by 57.55 per cent to USD 66.31 billion in June compared to the year-ago month.
The merchandise trade deficit in June 2022 was estimated at USD 26.18 billion against USD 9.60 billion in June 2021, which is an increase of 172.72 per cent.
Crude oil imports in June almost doubled to USD 21.3 billion.
Coal and coke imports more than doubled to USD 6.76 billion in the month against USD 1.88 billion in June 2021.
It is widely expected that the Reserve Bank may go in for a third consecutive hike in the key interest rate as retail inflation continues to rule above 7 per cent, higher than its comfort level of 6 per cent.
To worsen the situation, the whole-sale price-based index (WPI) too continues to remain above 15 per cent.
Since edible oil prices are falling in the international market, the depreciation of the rupee will not have much impact.
India had imported a record Rs 1.17 lakh crore of edible oils in the 2020-21 oil year ending October.
Imports of vegetable oils stood at USD 1.81 billion in June this year, up 26.52 per cent over the same month in 2021.
In the case of fertiliser, the government subsidy bill is estimated to rise to Rs 2.5 lakh crore in this fiscal against Rs 1.62 lakh crore in the previous year due to the high prices of key farm ingredients in the global markets coupled with the rupee depreciation.
A report by the finance ministry cautioned that India's current account deficit is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports.
Primarily driven by an increase in the trade deficit, the CAD stood at 1.2 per cent of GDP in 2021-22.
