Nearby 18% of rupee depreciation between May and December 2011 has added additional rupee cost of imports to the nation by INR 66,000 crores despite decline in the global prices of two major imported products crude oil and thermal coal according to the ASSOCHAM study on “Rupee Exchange Depreciation: Impact Analysis”.
The study analyzed four major imported commodities crude oil, thermal coal, fertilizers and vegetable oil. It was observed that the importers had to pay an additional INR 489.8 per barrel to import the same quantity of crude oil though the dollar price of crude had significantly declined.
While in the case of thermal coal, the importer has to pay an additional INR 684.6 per tonne to import the same quantity of coal, for fertilizer INR 3658.3 tonne and for vegetable oil imports INR 6,941.6 per tonne.
The benefits of the decline in crude and thermal coal prices could not be passed on to the consumers and contrary to that power and fuel became much costlier due to rupee depreciation. These factors, said the chamber president, Mr Dilip Modi, have significantly contributed to fueling the inflation both for the industry and consumers.
The chamber found that the import bill of crude oil increased by INR 5676.7 crore when exchange rate was varying during the respective month (April to December), the import bill of crude oil decreased by INR 4405.9 crore when exchange rate was fixed during the respective month. Import value in terms of international currency has declined in December as compared to April 2011. However, in terms of domestic currency import costs of Crude oil have increased.
A sharp decline in the value of the rupee is bound to affect the power generation capability of power plants that are heavily dependent upon imported coal for electricity generation. Moreover, a fall witnessed in power generation capacity is likely to have an adverse affect on all the three sectors of the economy namely agriculture, industry and services. Another dimension to the rupee depreciation episode is that not only has the expenditure on imports increased but this coupled with an inflexible tariff structure means that the power companies are going to suffer huge losses.
Import bill for coal, coke & briquettes with the respective exchange rates for the months of April and December 2011 the increase in import bill for coal, coke & briquettes comes out to be INR 4443.4 crore.
Using April 2011’s exchange rate to calculate the import bill for April 2011 and December 2011, the increase in import bill for coal, coke & briquettes would have been INR 2928.3 crore.
Due to rupee depreciation the import bills in the above situation differ by INR 1515.1 crore.
The combined effect of a depreciation rupee and an increase in dollar prices of DAP fertilizer has meant that the importer has to pay an additional INR 3658.3 per metric tonne to import the same quantity of coal.
The effect of rupee depreciation becomes more evident when we see that had the rupee stayed at May 2011’s level then the additional amount the importer would have to pay would have been INR 9445 per metric tonne. Therefore due to rupee depreciation the importers’ burden has increased by INR 2713.3 per metric tonne.
