TFS Gulf
  • All categories
    • inPractice
    • Entrepreneur Story
    • Finance Leaders
    • Videos
TheFinanceStory
No Result
View All Result
  • Login
  • Register
  TFS Gulf
  • All categories
    • inPractice
    • Entrepreneur Story
    • Finance Leaders
    • Videos
The finance story
No Result
View All Result
  • Login
  • Register
The Finance Story
No Result
View All Result

Impact of a weaker rupee on the Indian economy

The Indian rupee (INR) is at an all-time low. Retail inflation in India is likely to rise up to 7.5% in April. India is in a big trade deficit right now.

Preeti Mondal by Preeti Mondal
Published date: 13th May, 2022
Last edited date: 24th June, 2023
SHARE (254)
Impact of a weaker rupee on the Indian economy
Share on FacebookShare on Twitter

The Indian rupee (INR) is at an all-time low; about 77.57 as compared to the US Dollars, due to the bad selling pressures on Indian Rupee. 

Retail inflation in India which almost reached 7% during March is likely to rise up to an 18-month high of 7.5% in April.

India is in a big trade deficit which means we import more than we export.

For importing, we need to sell Indian Rupees to buy foreign currency and use that currency to buy goods. Therefore, we are selling INR.

The US Govt bond yield i.e., the risk-free rate for investors in the USA is 3.13% currently. This is a very high rate for a developed country like the USA that encouraged the US investors to pull out their money from India and invest in their own country bonds.

For doing this, they sold Indian stocks, got paid in INR, sold INR, and bought USD putting the selling pressure on INR.

Reasons for depreciation of the Indian Rupee

  • Owing to high crude pieces the outflow of dollars and the correction in equity markets are one of the major reasons for the negative cash flow of dollars.
  • The hike in interest rates by the U.S. Federal Reserve, the covid 19 pandemic along with adverse situations in the country of China led to the sell-off of global equity markets, further leading to the rupee’s depreciation.
  • Lastly, steps taken by RBI to tighten monetary policy to reverse and deal with increasing inflation have also contributed to the depreciation of the Indian rupee.

Effects of Weaker Rupee 

If the Indian rupee keeps on depreciating, the prices of goods are going to rise because the Government might use its printing power to print more money and pay off its debts.

Also, if INR keeps depreciating, every penny in your name will lose its worth before you know it.

The country’s fertilizer subsidy bill is supposed to hit a record of Rs 1.9 trillion this fiscal year, according to Crisil.

India’s current account deficit is expected to widen from 1.5% of GDP in FY22 to almost 3%.

Further, with the hike in commodity prices due to a shortage in supply, the cost of production for exporters has gone up. 

It has affected the export of items such as jewelry, gems, petroleum products, organic chemicals, etc, which constitute a significantly major portion of the Indian export system.

Further, India’s key export items such as gems and jewelry, petroleum products, organic chemicals, and automobiles, have a significantly high import content.

With rising commodity prices due to supply shortages, the cost of production for exporters will go up, affecting their margins.

Therefore, export sectors where the import intensity is high such as electronics, may not see a gain. Services sectors like IT and labor-intensive export sectors like textiles will indeed benefit.

Effects on the overall economy

There is a definite possibility of further weakening of the Indian rupee with a widening current account deficit and depleting foreign exchange reserves. In addition to that, with increasing landed prices of crude oils and crucial imports the economy is shifting towards cost-push inflation.

Upsides of Weaker Rupee

Theoretically, a weaker rupee should be beneficial to India’s exports but in the current environment of weaker global demand, a fall in external value will in fact be threatening to the economy.

Downsides of Weaker Rupee

India fulfills 2/3rd of its domestic oil requirements through import. Also being one of the top importers of edible oils, a weaker currency will exponentially increase imported edible oil prices equally increasing the food inflation rate.

Similarly, the risk of increasing imported inflation may be present, also making it difficult for Central banks to maintain low interest rates for longer.

 

Preeti Mondal

Preeti Mondal

Recommended for you

CAs retain exclusive Tax Audit rights; CMAs, CS excluded
Chartered Accountant

CAs Retain Exclusive Tax Audit Rights; CMA, CS Officially Excluded

23rd July, 2025 | 4 mins read
Saudi's $500Bn ‘Line’ Project under review as costs surge
News

Saudi’s $500Bn Megacity Project under review: McKinsey in spotlight

22nd July, 2025 | 3 mins read
Figma’s $100Mn AWS Cloud Bill. Are CFOs paying attention?
CFO

Figma’s $100Mn AWS Cloud Bill. Are CFOs paying attention?

14th July, 2025 | 4 mins read
Indian CA Firms may finally be allowed to advertise 
InPractice

CA Firms may be allowed to advertise?

10th July, 2025 | 3 mins read
Big 4 US, UK graduate jobs are vanishing: Thanks to AI & Offshoring
Big 4

Big 4 replace graduate roles with AI & Offshoring?

10th July, 2025 | 4 mins read
Italy approves 500,000 blue-collar visas
Cross Border

Italy approves 500,000 blue-collar visas. Big push to hire Non-EU workers

6th July, 2025 | 3 mins read
Next Post
Are we done with the Great Resignation? Oh not yet. Here is what 5 leaders have to say about it.

Are we done with the Great Resignation? Oh not yet. Here is what 5 leaders have to say about it.

Start conversation Cancel reply

Your email address will not be published. Required fields are marked *

Popular posts

  • KPMG Partner quits and goes Boutique with high end advisory firm: Now has 5+ offices & 75+ team

    KPMG Partner quits and goes Boutique with high end advisory firm: Now has 5+ offices & 75+ team

    0 shares
    Share 0 Tweet 0
  • Big 4 firms in India: Inside Deloitte, PwC, EY & KPMG career prospects, growth and salaries

    0 shares
    Share 0 Tweet 0
  • Designations in HDFC Bank: From Joining as an Assistant Manager to climbing to the rank of Managing Director.

    80 shares
    Share 0 Tweet 0
  • Big 4 India Partners jumping from one firm to another: High alert as Partner poaching surges

    0 shares
    Share 0 Tweet 0
  • CA Firms Kirtane & Pandit, Guru & Jana, SSKM unite to build India’s Next Big Global Consulting Firm

    0 shares
    Share 0 Tweet 0
  • Hierarchy level in ICICI Bank: Thinking of joining ICICI Bank? Here’s an overview of the employee grades.

    175 shares
    Share 0 Tweet 0
  • ICAI Under Fire: Women Removed from Front Row at CA Students’ Conference Following Guest’s Demand

    0 shares
    Share 0 Tweet 0
  • EY, PwC, Deloitte surpass 3,300 Partners. EY added 1000+ new Partners

    0 shares
    Share 0 Tweet 0
  • UK firm outsourced accounting work to India but quality dropped: Now established his own offshore unit

    0 shares
    Share 0 Tweet 0
  • Deloitte India offers ‘Golden Handshake’ to senior Partners aged 55 & above. Plans to elevate young partners.

    0 shares
    Share 0 Tweet 0
The Finance Story

The Finance Story empowers finance professionals—CFOs, consultants, accountants, tax experts, and bankers—to navigate critical market shifts, industry disruptions, and emerging technologies & trends.

How? We spotlight key opportunities in India and globally, equipping finance professionals with the insights and strategies to drive business growth, optimize decision-making, and position their companies at the forefront

Quick Links

  • Finance
  • Partners
  • Privacy and Policy
  • Terms of use

Follow us

  • /TheFinanceStory
  • @TheFinanceStory
  • /TheFinanceStory
  • @thefinancestory_com
  • TheFinanceStory

© 2022. The Finance Story. All Rights Reserved.

No Result
View All Result
  • TFS Gulf
  • Entrepreneur Story
  • Finance Leaders
  • Videos
  • Login
  • Sign Up

Welcome Back!

Sign In with Google
OR

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Sign Up with Google
OR

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
We use cookies to personalize your experience. By continuing to visit this website you agree to our use of cookies.
Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?
Book 1:1 call with industry expert