AHMEDABAD: Depreciation in the exchange rate of the rupee will lead to an increase in the country’s import bill due to higher payments for crude oil, coal, vegetable oil, gold, diamonds, electronics, machinery, plastics and chemicals. Economic research institute GTRIA on Friday said devaluation of the local currency will increase India’s gold import bill.
From January 16 last year till today, the Indian rupee has weakened by 4.71 percent against the US dollar, increasing from Rs 82.8 to Rs 86.7.
It is noteworthy that in the last 10 years i.e. from January 2015 to 2025, the rupee has declined by 41.3 percent against the US dollar and it has come down from Rs 41.2 to Rs 86.7. In comparison, the Chinese yuan has declined by 3.24 percent from 7.10 yuan to 7.33 yuan.
Ajay Srivastava, founder of GTRI, said, ‘Overall, a weak rupee will increase import bills, energy and raw material prices, which will put pressure on the economy. Export data of the last 10 years shows that a weak rupee does not help exports, while economists believe that exports will grow on balance, but the data paints a different picture.
The general consensus is that a weaker currency should boost exports, but India’s decade-old data tells a different story. High-import sectors are prospering, while labour-intensive, low-import industries such as textiles are floundering.
Total merchandise exports are expected to increase by 39 percent during the period 2014 to 2024. Strong growth was seen in high import sectors such as electronics, machinery and computers. Electronics exports increased by 232.8 percent and machinery and computer exports increased by 152.4 percent.
Meanwhile, low-import sectors such as apparel have weakened. However, a weaker rupee will make their goods more competitive globally. These trends show that a weak rupee does not always boost exports. On the other hand, labour-intensive exports suffer the most and import-driven exports with low value addition are encouraged.
The GTRI report recommended to the government that India needs to strike a careful balance between growth and inflation control to achieve long-term economic stability. Besides, there is a need to rethink the management and trading strategy of the rupee. However, the actual situation is serious. Most of India’s foreign exchange reserves of more than $600 billion are loans or investments that need to be repaid with interest, limiting the rupee’s stabilizing role.
