The rupee set a new all-time low record today, staying above the psychologically-important 70 mark against the dollar for the second consecutive trading day. The factor that sent it sliding 43 paise to Rs 70.32 in opening trade from the previous close was India’s widening trade deficit.
With the currency losing more than 11 per cent to the dollar this year, the country will have to shell out an extra Rs 68,500 crore when repaying short-term debt in the coming months, according to numbers arrived at by the State Bank of India.
The rupee fell past 72 per dollar to a record low on Thursday, amid a deepening emerging market contagion and the risk of a wider current-account deficit. If the rupee averages 73 to a dollar this year and crude oil, India’s biggest import, averages $76 a barrel for the remaining half of 2018, that could see the country’s oil bill rise by Rs 45,700 crore, Soumya Kanti Ghosh, chief economic adviser at the SBI, wrote in a note Thursday.
India’s short-term debt obligations, which included non-resident deposits as well as overseas commercial borrowings by companies, totaled $217.6 billion in 2017. Assuming 50 per cent has either been paid in the first half of 2018 or was rolled over to next year, the remaining amount to be repaid in rupees would be Rs 7.1 lakh crore computed using the average exchange rate of 65.1 per dollar in 2017.
For the second half of the year, assuming that rupee depreciates to an average value of 71.4 per dollar, the debt repayment amount would be Rs 7.8 lakh crore,” he wrote. That would implying an extra cost of nearly Rs 70,000 crore.
Let us see where we need dollars in our life.
- For crude oil import which is over 100 billion dollars and demand is increasing every year .
- Billions of dollars required to millions of rich Indians , who now prefer to vacation in foreign countries .
- Billions of dollars required for millions of Indians who prefer to study in China, Europe , US, Australia or Canada .
- We import more than 70 billion dollars worth goods from China , which consists of simple things which we can manufacture in India but do not do it.
- We also need to import high tech mobile phones, laptops , camera and many technology related consumer goods.
- We buy billions of dollars worth defence related equipment like Rafael jet fighters.
- Our Corporate companies prefer to borrow dollars instead of Rupee loan to get cheaper interest loans.
- Government allows buying foreign assets and equity shares for which we need dollars.
- Even we import food grains , pulses , exotic vegetables and fruits from many countries.
- We need many essential drugs used in Cancer and hi tech machines in medical industries. Rich and famous prefer to get treated in foreign countries for every sickness.
- And finally we need billions of dollars for buying gold and depositing dollars in Swiss and other overseas banks to escape government taxes.
- With property , gold priced stagnating , Indians are buying dollars as investment also for appreciation.
Now you can see our life is 50% dependent upon dollars . Let us see how we get dollars for above needs ..
- Overseas remittance from NRIs is number one , without liability, source of dollars . But this is falling as employment in gulf countries started reducing due to crude oil price fall .
- Exports of Gemstones was hyped for dollars earning . Actually it was spending dollars . Nirav Modi scam exposed that diamond industry was making use of export of diamonds for black money and round tripping by importing raw diamond at higher prices and showing false invoices for finished diamond export in dollar .
- Bollywood is now using more dollars because most shootings have to be in foreign countries . This is also a source of black money creation . So earning from these movies in overseas are no match for spending on movie making.
- Our exports in minerals reduced because of ban on mining by environmental NGOs and Supreme Court rulings.
- Our food exports are reducing as they are rejected due to contamination of pesticides and fertilizers.
- Our drug exports got banned by US because of fraudulent practices of big pharma companies.
- Our IT companies export reduced as it became less competitive after Trump ban on H1B visa body shopping misuse .
- Our goods and services exports in textiles , leather , handicrafts etc is becoming less every day because it is lacking in quality , innovation and design , while smaller countries are becoming more competitive. Foreign Tourist arrival is stagnating in absence of promotion for same.
- Earlier FIIs used to buy Indian equity and debt which increased dollars reserve , but now with Indian mutual funds being dominant , equity is no longer cheaper so FII investment had reduced considerably. Routing of Indian dollars money through Mauritius also reduced flow of dollars.
- Increased use of air travel requires more planes which need to be paid in dollars. Rich people need everything imported e.g. cars , choppers, private jets , imported home furnishings , imported fruit and vegetables, clothes , gadgets .
- With online shopping facility , anyone can buy anything from overseas websites which is to be paid in dollars.
For shortage of dollars, we need to borrow dollars from market for our daily needs and dollar’s price has to increase each day .In short , we are using more international goods and services than we deserve by earning our own dollars .
Unless we curb unnecessary dollar expenses for buying gold, foreign vacations , jewellery import , domestic goods, food imported for rich people , dollar will continue to fall and poor will keep on paying the price so that rich can live lavishly in and out of India.