Friday, 12 Sep, 2025
As pointed out in a story on India Tracker some days ago, while India exported goods worth $ 40 billion in June, 2022, the import bill was a massive $ 65 billion
The inevitable has happened. The value of the Indian Rupee vis a vis the American dollar has fallen below Rs 80 for the first time in independent India’s history. For prescient analysts, this became inevitable for two reasons in early 2022. First, Russia invaded Ukraine and completely disrupted supply chains. The value of the Indian currency was a little lower than Rs 75 then. But the double whammy came when the central bank of the United States raised interest rates because of soaring inflation in the country. Short term capital started immediately moving out of virtually all emerging markets including India to traditionally safe havens like the United States. This was bound to exert pressure on the Indian Rupee. To add further pressure, the remarkable rebound in GDP growth in the Indian economy has led to ballooning imports. As pointed out in a story on India Tracker some days ago, while India exported goods worth $ 40 billion in June, 2022, the import bill was a massive $ 65 billion. In such a scenario, the Rupee was bound to fall, no matter what the government or the Reserve Bank of India did. In fact, the RBI has made vain attempts to stem the fall; only to see a $ 60 million fall in foreign exchange reserves.
One of the key factors is the both the sustained rise in the consumption of oil, gas and petroleum products, India’s dependence of imports (it is the third largest importer of oil & gas in the world) and the dramatic rise in oil prices in the last few years. The accompanying chart shows the pattern of oil and gas consumption in India since 2019-20. The Covid pandemic and the subsequent economic disruption led to a steep fall in consumption in 2020-21. There was a smart recovery in 2021-22 but consumption remained a tad less than the level in 2019-20. But latest figures for April-May, 2022 clearly suggest that the pre Covid levels will be surpassed this year. Since India imports 85% of its oil requirement, it can only hope and pray that global crude oil prices come down significantly in the future. But with the mess in Ukraine continuing and with major oil producing countries like Saudi Arabia refusing to ramp up oil production, there is very little chance of oil prices and the import bill coming down significantly in the current year.
In the event, the pressure on the Rupee will continue unabated this year. With foreign exchange reserves already down by $ 60 billion in the last few months, it is doubtful if the RBI will intervene to stem the slide if the Rupee falls further. Perhaps the only silver lining comes from foreign direct investment and remittances from non-resident Indians. Together, the two accounted for almost $170 billion of dollar inflows into the country. Without that, the Rupee would have been in bigger trouble.
