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India to Pay Additional Rs 68,500 Crore as Foreign Debt Due To Rupee Fall

The Indian Rupee has lost more than 11 percent to the dollar this year. The rupee fell past 72 per dollar to a record low on Thursday.


Updated:September 7, 2018, 5:17 PM IST
India to Pay Additional Rs 68,500 Crore as Foreign Debt Due To Rupee Fall
A petrol pump employee counts cash at a fuel station in Mumbai on Friday. (Photo: PTI)

New Delhi: With the Indian rupee sinking to record levels against the dollar, the Centre has yet another mega expenditure to cater to – foreign debt. At the current rate, India will have to shell out an additional Rs 68,500 crore, according to numbers calculated by the State Bank of India.

This comes at a time when the currency has lost more than 11 percent to the dollar this year. The rupee fell past 72 per dollar to a record low on Thursday, amid a deepening emerging market contagion and the risk of a wider current-account deficit.

India’s short-term debt obligations, which included non-resident deposits as well as overseas commercial borrowings by companies, totaled USD 217.6 billion in 2017.

Assuming 50 percent has either been paid in the first half of 2018 or was rolled over to next year, the remaining amount to be repaid in rupees would be 7.1 trillion rupees computed using the average exchange rate of 65.1 per dollar in 2017, according to Bloomberg.

A weak currency always hurts a country. Be it India or any other part of the world. Very simply, everything gets more expensive. This includes luxuries like holidaying overseas, buying imported goods like cars and smartphones, studying abroad. This has an inflationary tendency and everyday consumables can become more expensive for you. Vegetables, groceries, and the proverbial ‘roti, kapda makaan’ get costlier.

Rupee depreciation will also have a direct impact on home loans. This means it is a bad time to get into one. What’s another area of concern is imports. A weak rupee to the dollar ratio makes imports costlier for India. Some imports are inevitable. One of the main ones is oil where crude oil prices are already on the rise. It is a sure double whammy on the current account deficit front.

While this should be good news for exporters as each time rupee depreciates the exports go up for obvious reasons, the ongoing global trade war will negatively impact India on that front. The IT and pharmaceutical industries will hold fort comparatively better than other sectors as they bank on exports. But again, only if the global trade war enables that and doesn’t prove to be a hindrance.

Fuel prices are seeing no relief in sight. Experts have predicted fuel to touch a century mark soon and some say the rupee could touch a century mark by 2019 albeit that remains a distant possibility.

The problem lies with the fiscal prudence measures of the government which does not allow the excise on fuel to be cut. Crude oil continues its upward trend and that does not help the fuel prices. A rise in fuel prices with a depreciating rupee makes inflationary pressure inevitable. This also has a direct bearing on CPI and WPI inflation numbers and could perhaps have the RBI intervene in a rather orthodox fashion to go for a 25 basis points rate hike.

On the fear of not being able to meet the fiscal deficit target, a rate cut in excise is a far-fetched possibility. In fact, sources have indicated the government is not likely to take any such steps despite having leveraged when crude traded around 35 thereabout dollars a barrel.

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