Imported inflation, fiscal costs remain key worries

THE RUPEE'S SHARP slide has the immediate effect of jacking up imported inflation.

- ARUNIMA BHARADWAJ, SWARAJ BAGGONKAR & MUKESH JAGOTA

It also has adverse fiscal implications as higher costs of imported fertilisers, crude oil and natural gas could inflate the subsidy bill. The situation is compounded by the spike in crude prices after a rather long spell of relatively moderate rates - Brent surged past $81/barrel on Monday. Typically, prices of several commodities, including key industrial feedstock, move in tandem with crude.

Any rise in costs of imported coal or steel could result in economy-wide cost-push inflation. White goods and electronic items could get costlier for consumers. The price rise will initially be limited to imported finished goods, but over time, domestically manufactured ones, too, may turn dearer as even these have substantial import content, and companies may opt to pass the rising costs.

A major effect of the rupee's fall will be on India's $100-billion industrial goods imports from China. These imports could become expensive.