Mumbai, India-Chakradhar Chemicals, a medium company that produces micronutrients and soluble fertilizers and agricultural equipment, has been widely opposed this year. The surge in the cost of imported raw materials – metal and plastic – and rupees that fall trimmed the margin of profit drastically.

But when asked if there was a panic now because Rupee stood on the 70th threshold to one dollar, and might soon fall further, the Director of Implementing Neeraj Kedia said he did not lose sleep because of that.

Calm is baseless. The price of raw materials has been normalized, and similar depreciation in the currency of its trading partners China has helped compensate for HIT to its business since the fall of Rupee.

Kedia said that if Rupee fell further in the coming days, he might have to compromise with a profit margin for several months, but the long -term impact on his business will be ignored.

“Unless it goes down to the 85-dollar level … then we will be in trouble,” he said.

Rupee has dropped quickly to 79.97 dollars – from 77.64 at the end of May and 74.55 on February 23, the day before Russia invaded Ukraine. This has tested the lowest record 80,0575 twice this week, recovered when the Bank of India Reserve stepped to support it.

Kedia said that while the 1.5 rupee decline in the last two months was heard like a lot, in the percentage only 2 to 3 percent and, while pressing his margin for several months, he hoped for things to stabilize after that.

“I do not see the reason for increasing my blood pressure over this,” he said, added, “Thus, fluctuations 1 to 2 percent continue to occur in business. Even if I get my component from Mumbai or Chennai [instead of importing it] maybe there is Fluctuations like that because my shipping component will increase. Destruction of demand will occur if there are 10 percent fluctuations. “

The war carried out by Russia in Ukraine, raged for four months now, has caused a capital flight to the Safe-Haven asset in the US, which caused a decline in most of the global currency.

Even worse, the global deficiency in the supply of commodities produced by Ukraine and Russia which is highly approved has sent inflation that rotates to an unprecedented level throughout the economy. While the economy moves to tighten the loose monetary policy used during the pandemic, to control inflation, concerns about the emergence of recessions have caused further flights to secure US assets.

Dollar liquidity that recedes in the face of aggressive tightening by the US federal reserve and the risk of the risk of making the dollar stronger, which causes sharp depreciation in most global currencies. Earlier this month Euro touched parity with dollars and even fell below for the first time in 20 years.

The decline in the Indian currency not only raised a bill for the country’s importers but further feeding domestic prices through import inflation. In the case of India, the soaring oil prices and rupees that fell prove a deadly combination for the country’s inflation situation considering the country imported most of its oil.

As a result, a decline of more than 7 percent in this year’s rupee has affected importers such as as many Indians who have seen a sharp increase in their expenses, even on basic needs.

The increase in food and fuel prices has caused a developing household bill – 32 percent of Indian households struggle to meet monthly expenses and 11 percent cannot, Indian media reported last week quoting reports by Kantar Group. About 71 percent of people surveyed feel inflation will continue to increase.

However, India is not alone in battle and economy like that all over the world find themselves wrestling with depreciation currencies in the face of increased inflation. Rupee is actually one of the currency that performs better globally.

Rupee crossed the 70-dollar sign in August 2019. While violations of other landmark rounds in three years will definitely get attention, analysts argue that there is no need to sound alarm. There is nothing sacred about 80 rupees into one dollar and falling below an important level psychologically cannot significantly add to the existing Indian disease.

Abheek Barua, Head of Executive Economist and Vice President at HDFC Bank, said that the depreciated currency combination and high inflation were undoubtedly suppressing the economy, but the use of new global commodity prices had increased India’s tolerance for the depreciation of Rupees.

This will increase inflationary pressure but the impact of depreciation on inflation is not too large … Rupees are still considered too high,” he said.

Inflation vs exports push

Barua shows that because the Indian currency has depreciated less than some of its trading partners, some depreciation is more, although in an orderly manner, it might make Indian exports more competitive globally, the night comes out several trade deficits that support the Indian balance of payments.

Although it will cause some inflationary pressure, “the quantum of inflation is relatively low and we get competitiveness … so I don’t think there is something sacred about 80,” he said.

The real effective exchange rate (reer), which measures the value of rupees compared to a basket of 40 currencies, stands at 104.18 in June. In other words, Rupee is still considered too high.

While exporters have seen the advantage of a windfall in the accounting side of the sharp decline of this year’s rupees, further decline can make their products more attractive globally given that the geopolitical crisis in Europe has increased the opportunity for Indian exports.

Animesh Saxena, Director of Implementing at Neetee Apparel, a small manufacturing unit that exports fashion clothing, said that while the company has seen accounting profits in 20 to 30 percent of the dollar exposure, other companies have seen a 50 percent profit because they fall down quickly Rupee.

Pay imports with rupees
The Central Bank of India, realizing the impact of inflation from the decline in rupees, has actively sold dollars in the currency market to ease the decline in rupees.

This effort caused a decrease in $ 61.77BLN in his foreign exchange reserves from its peak in the first week of September.

Reserve Bank of India has also actively interact with currency market participants to ease fears of the collection of currencies, including emphasizing that with a reserve of $ 580.25 billion, India is ready to defend the currency against a sudden and sharp decline.

In many steps the regulation announced by the bank earlier this month in an effort to support Rupee, one prominent more than the other. The central bank encourages invoices for Indian exports and imports at Indian rupees.

Although there is still a long way before Rupees receive receipts as currency for trade, analysts say that this will definitely open space for deeper involvement with countries with limited dollar use, such as Russia.

This will be very useful in delaying the flow of Indian dollars for its expenditure for oil and defense imports from the country.

“Russia sells oil at discounted prices to India and China. At the time of the trade deficit we were under pressure, it made every meaning of mathematics, politics and logical to import from Russia, “said Harihar Krishnamoorthy, an independent expert in foreign exchange said.

If India can pay for imports at Rupee, “then we will have great and great benefits for Rupees,” said Krishnamoorthy.

In that scenario, the surplus rupees could either be parked in accounts that russian banks have with indian banks, balanced against exports such as pharmaceuticals and engineering items, or even be invested in the government bonds offsetting a portion of the losses of foreign portfolio investors The Indian market sees now.

In a scenario where India can replace some of its oil imports from Saudi Arabia, where trading is demonstrated by dollars, with that from Russia, the import bill will decrease significantly, helping Rupee, Harihar said.