While there are encouraging global forecasts for India's economic growth, some concerning developments have emerged. Specifically, a trio of challenges from the U.S. has strained India's economic landscape. Initially, President Donald Trump imposed a staggering 50% tariff on Indian products, followed by a dramatic increase in H1B Visa fees. Now, the relentless pressure has taken a toll on the Indian currency, with the Rupee hitting new lows each day.
Tariffs, Visa Fees, and Rupee Depreciation
The implications of the U.S. tariffs and the subsequent visa fee hike announced by Trump have significantly affected the Indian stock markets, with indices like Sensex and Nifty struggling. Initially, a 25% reciprocal tariff was imposed, which was doubled to 50% over issues like Russian oil and arms purchases.
While initial negotiations between the two countries seemed to hint at a positive resolution, Trump's 'visa bomb' announcement, hiking H1B Visa fees to $100,000, rekindled turbulence in the stock market, causing another sharp decline. Consequently, the cycle of Rupee depreciation commenced and continued unabated, reaching an unprecedented low at the market opening on Wednesday.
Reports suggest that the 50% U.S. tariff exerted continual pressure on the Rupee, further exacerbated by the increased H1B Visa fees levied by Washington. These new visa regulations could complicate the pathway for Indian IT professionals to the U.S., potentially slowing IT service export growth. Analysts at MK Global have warned that export growth for FY26 could drop below 4% from the anticipated 5%.
Source: aajtak
Daily Falling Records
The Rupee, setting new records by the day, experienced its most significant one-day drop in a month on Tuesday, and by Wednesday opened at a record low of 88.80 against the Dollar. Reuters reports indicated that the one-month non-deliverable forward suggested a currency range of 88.85-88.90, surpassing the previous low of 88.7975 in the last trading session.
Economic Implications of Currency Depreciation
Stabilizing the continuously weakening Rupee is imperative to prevent extensive economic repercussions, including inflation. Generally, a devalued currency poses challenges for a country's economy by making imports more costly, directly affecting the trade deficit.
Source: aajtak
Recently, a former finance secretary, now SEBI Chairperson, acknowledged the Rupee's depreciation but assured that the Reserve Bank continues to manage its volatility. They also highlighted that the Indian currency has a 'free float' and isn't pegged to a fixed rate.
Risk of Increasing Inflation
The ongoing depreciation of the Rupee against the U.S. Dollar poses the risk of rising inflation. This ripple effect can be observed in the increased expenses for petroleum products and foreign education. For context, India, being a major oil importer, heavily relies on crude oil imports for its needs.
With the Rupee's decline, India faces the necessity of spending more Dollars on imports, potentially leading to an increase in petrol and diesel prices. Such a scenario would escalate transportation and logistics costs, raising consumer prices. Significantly, a depreciating Rupee increases the inflationary pressure on imported goods.
