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How Does The Depreciating & Appreciating Rupee Affect / Impact Imports & Fuel Prices?

In our last article we told you how the Depreciating and the Appreciating rupee affects Exports. The analysis is similar for Imports to but as you might have guessed already its just the opposite. We will do this analysis of imports using a company that deals in crude oil. Thus you will be able to realise why a depreciating rupee leads you to shell out more for your petrol or diesel.

Import goods to India

Import goods to India

So let us now consider a scenario where we have a company that imports crude oil from the gulf into India. What typically happens is this, the company would first get the rates of one barrel of crude oil in US dollars from the gulf and then go to the bank, pay the requisite equivalent in Indian currency to get the US dollars and then make the payment to the company in gulf to those barrels of crude oil.

Lets get down to the math now. If one barrel of crude oil costs US $100 then considering $1 = Indian Rs. 50, the company in India would have to pay Rs. 5000 in order to procure that one barrel of crude oil from the gulf. Now if the Rupee depreciates and $1 becomes Rs. 60 in Indian currency, then the company would now have to pay Rs. 6000 in order to get the same one barrel of crude oil. A whopping Rs. 1000 more for the same amount of goods.

Thus a depreciating rupee is bad for Importers in general and it affects fuel prices as well. Now similarly if we consider an appreciating rupee, say $1 is now Indian Rs. 40, that same oil company has to now pay Rs. 4000 in Indian currency to procure the one barrel of crude oil – a whole Rs. 1000 lesser. SO you can see how appreciation of the rupee is good for imports as well as for the prices of petrol and diesel.

image source – www.riseandgrind.com

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