The Indian rupee has sunk to record levels against the dollar, resulting the Centre to cater to yet another expenditure – 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. India’s short-term debt obligations, which included non-resident deposits as well as overseas commercial borrowings by companies, totalled $217.6 billion in 2017.
Well, Oil isn’t the only worry for India as the rupee slides. We cannot miss adding the external debt to the list.
The rupee fell past 72 per dollar to a record low on Thursday, as reported by Hindustan Times, amid a deepening emerging market contagion and the risk of a wider current-account deficit. If the rupee averages 73 to a dollar this year and crude oil, India’s biggest import, averages $76 a barrel for the remaining half of 2018, that could see the country’s oil bill rise by Rs 457 billion, Soumya Kanti Ghosh, chief economic adviser at the State Bank, wrote in a note Thursday.
India’s short-term debt obligations, which included non-resident deposits as well as overseas commercial borrowings by companies, totaled $217.6 billion in 2017. Assuming 50% 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 Rs 7.1 trillion computed using the average exchange rate of 65.1 per dollar in 2017.
“For the second half of the year, assuming that rupee depreciates to an average value of 71.4 per dollar, the debt repayment amount would be Rs. 7.8 trillion,”
he wrote. That would implying an extra cost of nearly Rs. 70,000 crore. The analysis did not give details of hedging, if any.
Here are other risks Ghosh listed:
– Increasing bond yields could add to the government’s fiscal costs, which is estimated at up to 0.7% of gross domestic product
– A 10% depreciation in the rupee could add up to 50 basis points to inflation, as per RBI estimates, besides pushing the oil import bill higher
Whether India or any other country, a weak currency always hurts hard. To put it in layman’s words, everything is going to get more expensive. Few of the lifestyle standards that could be affected, include, 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, as reported by News18.
Fuel prices are seeing no relief in sight at least in the near future. Experts have predicted fuel to touch the 100 mark soon. Others have also envisaged the rupee touching a century mark by 2019, however that remains a distant possibility.