From electronics to EVs, rupee's record plunge risks rise in prices of some items

Rupee has fallen to record levels in recent days.

Indian rupee has depreciated by more than 5% this year as it faces multiple challenges even as India's macroeconomic picture remains robust with key indicators flashing green. India reported a second quarter GDP growth of 8.2% while retail inflation has plunged to near zero.

Though the RBI isn't worried by the depreciating rupee and remains focused on its mandate to contain volatility without targeting any particular value, the upcoming monetary policy announcement on December 5 will be closely watched for any commentary on the weakening currency.

RBI Governor Sanjay Malhotra had earlier said that a 3-3.5% drop in currency's value annually is in line with historical average.

Even though India's retail inflation has trended downwards with the October print recording a historical low of 0.25% for the month of October, risks of some of the items seeing a price rise remains as they comprise parts sourced from abroad. A fall in rupee's value will mean that the companies manufacturing or assembling them could pass on the higher costs to customers.

Electric vehicles could see increased pressure as they source battery packs, chargers and other components from abroad though it may not be a worry for short term as they are protected by import insurance and long term contracts.

White goods like air conditioners and television sets could also see some price increase owing to weaker rupee. Electronic items also use parts that are imported and a fall in rupee could mean that the input costs would go up. Mobile phone prices could also see some price increase.

Overseas education could also become costlier as rupee crosses the 90 a dollar mark. This could mean higher EMIs for those planning to send their children abroad for education. Companies that have availed foreign borrowing will also face increased pressure with the fall in rupee. Hedging costs have also gone up.

India sources around 80-85% of its crude oil requirements from abroad. Record fall in rupee mean that the import bill could swell impacting companies that use oil and its derivative products as raw materials. OMCs could also witness some margin pressure as the pump prices remain unchanged and cost of buying crude goes up keeping all other things same.

India's fertilizer subsidy bill could also go up in the event of rupee's continued weakness as the country relies majorly on imports to meet the domestic need.

Speaking on the rupee depreciation, India's chief economic advisor V Anantha Nageswaran recently commented that he's not losing sleep over it.

“It will come back next year. Right now, it's not hurting our exports or inflation. I am not losing my sleep over it. If it has to depreciate now probably is the right time,” he said.

A weakening currency helps India's exports as they become more competitive in the international market.

Nageswaran added that India is a developing economy and the imports will only grow and they need to be financed through exports and increased investments in the economy.