The rupee has depreciated by over 10% to close to 50-per-dollar mark currently from its near 44-level against the US currency at the beginning of August.
Impact on Overseas loans:
1. Corporates have been increasingly tapping overseas loans—mostly in the US currency—to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits
2. Indian companies have borrowed close to $21 billion in foreign currencies through ECB (External Commercial Borrowing) window between January and July this year, as against a total amount of $18 billion in entire 2010.
3. In July itself, as many as 100 companies tapped overseas loans totalling over $4 billion. This included Mukesh Ambani-led RIL raising $1.09 billion for refinancing its old loans, Mundra Port ($150 million for ports business) and Indian Oil ($500 million for import of capital goods).
4. As a result, many of the companies might have to book mark-to-market losses on their books for this year unless the rupee reverses its downward trend, experts said, while adding that the current level of rupee depreciation pegs the estimated hit on their profits at over $2 billion. Which would affect the investors.
Depreciation impact on Pharma:
1. The Indian Pharma Companies faced challenge as they have Foreign currency convertible bonds outstanding.
2. The falling rupee imposed a higher burden on interest charges and repayment obligations
3. Some of the Companies that will be negatively impacted are Ranbaxy, Sun Pharma Cadilla, Wockhardt, Matrix Labs etc.
Impact on Oil Industry:
Depreciation in rupee could further magnify the value of Oil Imports, as olil companies will now have to buy dollars at much expensive rate, It is said that any sharp fall in the rupee will inflate India’s import bill, as oil accounts for more than 80 % of the country’s total imports. This will further widen trade deficit
IT Industry:
Infotech Companies make the most of depreciating rupee and have systems in place toe hedge the risk inherent in forex earnings. Most of the revenue of Indian IT Companies comes from abroad, the rupee’s downward trend will boost the results of this sector.
Export:
Exports from India are of handicrafts, gems, jewellery, textiles, ready-made garments, industrial machinery, leather products, chemicals and related products. Since the 1990s, India is the world’s largest processor of diamonds. Fall in rupee should boost exports.
Manufacturing Industry:
The depreciation of rupee will have huge impact on the domestic economy ie manufacturing companies, other industries and common man. As the economy will be hit with high inflation and high interest rates
Hotels:
Hotels benefit from rupee depreciation as over 60% of revenues in the luxury hotel segment are in foreign currencies
Fertilizers:
Fall in rupee will hit import of Diammonium phosphate (DAP) fertilizer. Imports will slow down resulting in shortage of fertilizer
Conclusion:
Conclusively, appreciation and depreciation of rupee cannot certainly be taken as beneficial to the Indian economy in general. On one hand the rupee appreciation will affect exporters, BPOs, etc., on the other, rupee depreciation will affect importers.
It is difficult to take a view on future rupee levels currently as it is being driven by sentiment currently. And so long as the risk aversion mood remains, rupee will continue to be under pressure,” said Ashish Parthasarthy, treasurer at HDFC Bank.
Parthasarthy added active intervention by the Reserve Bank of India was needed to help subside the panic and “smoothen any wrinkles” in the foreign exchange market.
So now it depends on what the future has to reveal for, how effectively the central bank can balance the Foreign Exchange rates with little impact to the relative areas of FX usage. However, according to the finance ministry, the rupee’s depreciation is only a short-term disruption which does not require central bank intervention.
Can India manage to steer its way and hold the depreciating rupee?
CAclubindia
