MUMBAI: The gains India has been making on its import bill due to a steep fall in crude prices may be partially offset if the dollar strengthens more after the US Federal Reserve raised key rates after nine years, and indicated there would be more such increases in the future.
Analysts said that a lot of the dollar appreciation is already factored into the commodity market, but they would be carefully watching the future rate actions of the Fed.
“We are not worried on the dollar-rupee front. Crude is one of the biggest components of our imports, followed by gold. Capital will still come in, but some exporters could face some headwinds on account of weak demand. We feel most macro numbers are favourable to India rather than adverse,” said SK Ghosh, chief economic advisor, State Bank of India.
Crude oil prices have nosedived in the past year and a half and despite some intermittent recovery in between, the trend continues to be downwards. For India, lower prices mean lower import bill and more cash with public sector oil companies to make investments.
But if the dollar strengthens against the rupee, the landing cost for crude imports may rise and wipe off some gains made by India, sector experts said. “Fed action was already factored into the currency and commodity market. Going ahead, though we will have to see how the dollar moves and if it adversely impacts the price of crude oil. If that happens, then India will not be hurt as the impact of rupee weakening would be offset by cheaper crude,” said Debashish Mishra, senior directorconsulting at Deloitte Touche Tohmatsu India.
Crude prices have plummeted to below $40 a barrel from $100 in July-August 2014. Currently, for every $1 decrease in crude prices, India saves Rs 6,500 crore on its import bill and another Rs 900 crore on subsidy burden. Crude prices are consistently falling due to worries of oversupply in the market. Iran has been scaling up output after international sanctions were lifted.
