The rupee breached its crucial 70-mark against the dollar to close at 70.16 despite Reserve Bank of India's intervention. The recent fall came after a sharp slump in the Turkish Lira and the Russian Ruble. In theory, the rupee's fall should benefit Indian exports. But can it really give an extra edge when other EM currencies are also depreciating versus the dollar? Besides, most manufacturing exports are dependent on imported inputs, thus the net effect on exports is limited. In Q1FY19, the total oil import stood at $32.85 billion, while export was $9.1 billion. For gems and jewellery, the total import came in at $7.6 billion, while export at $7.95 billion.
Meanwhile, there are concerns Russia and Turkey may reduce steel prices drastically to make the most of their devalued currencies. This, in turn, may force India to cut prices to stay competitive in the exports market. That could hit the nascent recovery in the steel sector. Just when bad loans to the steel sector were beginning to see a resolution, any artificial slump in prices wouldn't bode well for India.
- Aprajita Sharma