Weakened Rupee Will Make Certain Products And Services Costlier

The Indian rupee has fallen nearly 5% this year against the dollar, although the country's macroeconomic conditions remain stable, with the lowest ever inflation recorded in October at 2.5% and the GDP growth hitting 8.2% in the second quarter. Experts attribute the crash of the rupee to the widening trade deficit, outflows of foreign portfolio investment (FPI) and US tariffs.

Sonal Varma, Chief Economist at Nomura India, regularly publishes rupee outlooks on Nomura's official site and LinkedIn, noting that the currency's weakness is largely driven by global dollar strength and India's heavy import dependence.

However, the Reserve Bank of India (RBI) has implemented a proactive strategy to mitigate the rupee's decline, focussing on preventing significant fluctuations. RBI Governor Sanjay Malhotra said that it is normal for emerging countries' currencies to fall, and it is expected that the rupee to fall around 3-3.5% each year in compliance with historical averages.

Kaushik Basu, former Chief Economist of the World Bank, stressed that structural reforms rather than short-term interventions will ultimately determine the rupee's trajectory.
But the area of concern is the potential price hike for products that are overly dependent on imported components. The companies that incur high expenses on imports may share their increased input costs with customers.

Some Products' Prices May Rise

Electric vehicles, which use imported components such as battery packs and chargers, are currently covered by long-term contracts and import insurance and may not face an immediate setback. However, prices of various products such as televisions, mobile phones, and air conditioners may go up.

Oil and Fertiliser Bills

The rise in the import bill will primarily affect oil and fertiliser, which hold a significant position in India's import basket. India imports about 80 to 85 per cent of its crude oil needs. When the rupee weakens, the cost of imported oil skyrockets as the refiners are forced to pay more rupees for the same amount of oil priced in dollars. Oil marketing companies, which sell petrol and diesel, may see their profit getting affected if pump prices remain unchanged while import costs go up.

A weaker currency might make the government's subsidy expenditure rise because India relies significantly on imported fertilisers.

Reflect on the Service Sector

Households will bear high costs for their children's education and studying abroad will be quite expensive. With the rupee at above 85 per dollar, tuition fees and living expenses in foreign countries become costlier and lead to higher monthly loan payments, or EMIs.

Rupee Fall

Historically, the rupee has always been under pressure against the dollar, depreciating at the rate of 3-3.5% over the long run. It was due to the country's overdependence on imports, especially oil imports, global dollar strength, oil price shocks, capital outflows, and inflationary pressures. However, this year, the Indian currency depreciated by 5%, which is higher than the historic average and fell to the psychological limit of 90. In January 2025, the rupee was traded close to 84.2 per dollar. Last year (2024) the rupee had depreciated by nearly 3 percent.

Asian Peers

Other than the rupee, other major Asian currencies have fared well against the US dollar this year. While Chinese Yuan (CNY) remains stable, Japanese Yen appreciated almost 1.8%, Thai Baht strengthened nearly 7%, and Philippine's Peso depreciated only 1.94%. Only the Indonesian rupee's performance matched the Indian rupee's depreciation, falling 4.05% against the dollar.

Government's view

Chief Economic Advisor V. Anantha Nageswaran argued that the rupee fall has not affected India's macroeconomic goals, citing low inflation and high growth and stressed that, on the contrary, a falling rupee could help exporters get their products and services cheaper and more competitive in international markets.
India's retail inflation had hit a record low of 0.25% in October, while GDP growth in Q2 reached 8.2%, beating estimates.

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