Inflation and fiscal risks seen manageable

WHILE RUPEE DEPRECIATION does push up the landed cost of crude oil, fertilisers and edible oils, the scale of impact is seen as modest, particularly with inflation running low, oil prices softening, and several import exposures hedged, economists said.

- PRASANTA SAHU

Fiscal implications would be largely limited to a possible increase in fertiliser subsidies, as the issue prices of urea will likely remain unchanged. The government also appears to insulate farmers from price hikes of other key soil nutrients such as DAP and NPK by hiking subsidies in line with global prices.

However, economists are divided on the macroeconomic implications of a weaker rupee and what should be the policy response to the currency’s almost relentless fall.

“A relatively strong rupee suits elite consumption and demand patterns as it makes imports of fuel and luxury goods and foreign travel cheaper. A weaker rupee, on the other hand, incentivises the exporters and promotes labour-intensive exports which generate much needed jobs,” Rajiv Kumar, former vice chairman of Niti Aayog, told FE.