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Last updated: 22 Mar, 2022  

Rupee.9.Thmb.jpg Rupee dilemma

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Bikky Khosla | 22 Mar, 2022

The Rupee has shed almost 3.5% against the US dollar this year. The currency has remained in a range of 75.50-77 level, since the start of the Russia-Ukraine conflict, and crude oil and commodity prices, and its consequent impact on the current account balance, are likely to continue to put pressure on the currency. Meanwhile, in another negative development Forex reserves have plunged- the steepest in nearly two years- during the week that ended on March 11.

Usually, Rupee depreciation gives a boost to exports and according to reports, exporters of carpets, handicrafts and engineering goods expect up to 10% benefit from the ongoing depreciation, but in contrast, labour-intensive export sectors such as gems & jewellery, pharmaceuticals and electronics are going to suffer as they are highly dependent on imports of inputs. With iron and steel prices going up sharply, a weak Rupee seems to be only a temporary relief even for those sectors now benefitting in short-term.

The gems & jewellery sector is facing a double whammy as the Russia-Ukraine conflict has sent gold prices soaring. Meanwhile, the pharmaceutical industry, which exported drugs worth $591 million to Russia and $182 million to Ukraine in 2020-21, expresses concern that western sanctions against Russian banks may impact remittances of their outstanding trade receivables. The consumer appliances industry is also concerned over rise in raw material and shipping costs.

Meanwhile, the RBI said that geopolitical crisis has heightened uncertainties over global macroeconomic and financial landscape, and amidst these testing times, the Indian economy is experiencing spillovers as it recovers from the third wave of Covid-19. Consumer and business confidence are rising alongside improvement in demand conditions, while on the supply side, a resilient farm sector and a sustained retrieval in both industrial and services sectors are broadening the recovery.

I invite your opinions.
 
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