The recent slide in the rupee is expected to have only a marginal impact on inflation, according to Ranen Banerjee, partner and leader of Economic Advisory Services at PwC. He estimated that the currency’s depreciation would add no more than 10–20 basis points to overall price levels.
The rupee briefly slipped past the 90-mark on December 2, touching a record low of 90.19 against the US dollar.
Banerjee said that while a weaker rupee typically raises the cost of imported goods, its pass-through to consumer inflation is now more limited because a large share of India’s imports is re-exported. Crude oil, primary commodities and gold make up a substantial portion of the import basket and are largely processed or used in export-oriented sectors, he noted. “There will be an inflationary impact, but given our export and import basket has changed, it is not going to be that high,” he added.
He also cautioned against viewing currency movements in binary terms, arguing that exchange-rate shifts should be assessed for their broader macroeconomic implications rather than as indicators of economic strength or weakness.
On monetary policy, Banerjee said the Reserve Bank of India’s Monetary Policy Committee has “headroom” to cut rates, though timing remains a matter of deliberation. “There is no trigger if inflation is benign and growth is high,” he said.
A key uncertainty, however, is the path of the US Federal Reserve. If India holds rates steady while the Fed eases, the narrowing yield differential could raise the risk of capital outflows.
Banerjee downplayed concerns that a weaker rupee would strain public finances. He said even a modest rise in the fertiliser subsidy bill would not materially alter the fiscal math. The Centre, he added, is likely to meet its fiscal deficit target for the year and could even outperform expectations with a deficit around 4.3 percent of GDP.
Looking ahead, he expects the deficit to fall below 4 percent next year as the government works toward reducing the debt-to-GDP ratio to about 50 percent.
“We expect the capital spending to touch Rs 12 lakh crore in FY27, while fiscal deficit will have a possibility to even drop below 4 percent of GDP mark given the government is targeting to bring the debt to GDP ratio towards 50 percent,” he said.
India’s fiscal deficit is projected at Rs 10.7–11.1 lakh crore this year, compared with the budgeted target of Rs 11.2 lakh crore. As of October, the government had already spent more than half of the annual allocation.
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