The diminishing value of Indian currency has reached its bedrock on September 6 by touching its lowest value at ₹72 per dollar. As per the calculations by State Bank of India, the government will have to foot an additional bill of ₹68500 Crore to settle the foreign debts. The rupee has weakened by 13% in 2018. Adding to this, SBI believes that the cost might exceed benefit given the depreciation is beyond a certain level.
Costs of Short-term debt
The recent report by SBI suggests that India’s short term debt liability at ₹21800 Cr. to be paid by December 2017 can change the cost levied on Government. Earlier, India was to pay ₹21760 Cr. If we make an assumption of half bill to be paid in 2018 or delayed till 2019, the average balance debts will be ₹710000 Cr. as per the 2017 exchange rate which is ₹65 per dollar. The depreciating trend of rupee (currently at ₹72 per dollar) would imply ₹67000 Cr. more.
Aftermath of Oil Import bill
India’s track record to import crude oil suggests an increase by 3.6% in 2018. The crude oil accounts for ₹74.24 per barrel for the rest of the year, amounting up to ₹364300 Cr. considering the exchange rate at ₹65 per dollar. With the shooting imports and downfall in rupee, this would add ₹35300 Cr. more to the import bill. The upward movement in cost direct towards inflation affecting the country as a whole.
Decreasing value of currency and Inflation
RBI suggests, Inflation can touch around 20 basis points more given the value of rupee depreciation is at 5%. Certainly, the consequences can be seen in rising prices of daily needs.
The increasing trends in yields also cause an upsurge in the government fiscal cost. It is expected that, India will now have to bear at least ₹6000-7000 Cr. accounting to such costs thereby pressuring the government to lend more borrowings.
The report also included a word about the potency of currency depreciation and increasing exports. SBI research found a weak relationship between exports and exchange rate from January’ 07 and June’ 18. As per the records, it can stimulate the export growth by ₹15000 Cr. in a long term.