Indian importers, businesspeople and students hoping to study abroad are worried that their plans will be derailed, after the rupee hit a historic low against the US dollar.
The Indian rupee dropped to a new all-time intraday low of 80 rupees to a dollar on Tuesday.
Experts warn this could spark repercussions across the country — increasing the cost of imports and overseas education and stoking inflation, which is currently 7 per cent.
Delhi-based architect Sameer Dhanda, 28, has already taken out an education loan for higher studies in Portugal in September.
While his bank approved a loan of $11,500 in May, with the strengthening of the dollar he now needs to find more cash.
The stronger dollar means he now has to raise to 960,000 rupees — just over $12,000.
“If the value of the dollar keeps increasing till September, the required funds would go beyond my personal financial support and make it difficult to survive the upcoming year-long academic session in an alien nation,” Mr Dhanda told The National.
Importers are also wary of forking out more for components but only being able to sell their products for the same price and incurring a loss.
Suraj Rana, who runs a business importing industrial machinery parts in Greater Noida, a satellite city outside New Delhi, said his business was already affected by inflation and the currency move will see him face more losses.
He said the foreign exchange market has a big influence on his business.
“Forex hugely impacts import-export business as we calculate the landed cost depending on the forex.
“We can’t negotiate with customers as we have an annual contract but our purchase cost will rise and that will affect the profit margin. We will have no option to squeeze our margin,” Mr Rana told The National.
The energy sector is also set for a shock as India imports more than 85 per cent of its oil and half of its gas needs. Rising prices of oil and gas will then have a knock on across the country.
New cars will also become more expensive, as India imports about 20 per cent of the raw materials, as will electronic items such as mobile phones.
The slumping rupee means commodities including coal, plastic, chemicals, vegetable oil, fertilisers, gold, pearls, precious and semi-precious stones and iron and steel will all be affected.
Economists say that while importers will be shouldering higher costs or hiking prices, exporters may see a boost in sales as Indian products become cheaper on the international market.
“In June 2022, India’s merchandise trade deficit widened to an all-time high $26 billion, and the wholesale price-based and consumer price inflation printed at 15.2 per cent and 7 per cent, respectively,” Aditi Nayar, chief economist with ICRA investment information and credit rating agency, told The National.
“While commodity prices have corrected since then, the landed prices of imports will see a milder moderation following the depreciation of the [rupee], which will somewhat limit the improvement in the domestic inflation readings going ahead,” she said.