A strengthening dollar, particularly in a short span, worries investors as a weaker home currency makes import costlier and corporate India imports more than what it exports. But, a closer look at the nature of imports of India Inc reveals that this time around, the pressure of a weaker rupee - it has fallen by 3% in a month — may not be as acute.

This is because of the significantly lower price of crude oil, which forms nearly two-thirds of corporate India's imports. The presumption excludes events of extreme turmoil in the currency market. According to the ET Intelligence Group's analysis of the annual import cost and export revenue of the BSE 500 companies, imports by oil and gas companies formed 64% of total imports of the sample in 2014-15.

The proportion was between 62% and 67% over the past five years. The sample included 437 companies across sectors, which published annual reports for 2014-15. The sample's aggregate import was Rs 13.4 lakh crore in 2014-15 whereas export was Rs 8.2

Lakh crore. It means the trade deficit for the sample was Rs 5.2 lakh crore. This was the lowest deficit in four years, largely reflecting the fall in crude oil prices during 2014-15, which reduced the sample's import bill by 7.7% year-on-year. The sample's export dropped at a relatively lower rate of 4%. In the current fiscal (2015-16), global crude oil prices have fallen sharply.According to the Petroleum Planning and Analysis Cell (PPAC), average price of the Indian crude basket was $57.7 per barrel for the first five months of 2015-16 compared with the average of $84.2 per barrel for 2014-15. The average price for August 2015 was even lower at around $48 a barrel.

Barring January 2015, when the basket's price was $46.6, prices were never this low in the past six years. If the basket price falls further or stays within a narrow range, the import bill of oil and gas companies for the fiscal could fall even after considering that the depreciated rupee would marginally offset the benefit of lower crude prices. Which means India Inc's overall import bill for 2015-16 may not increase significantly unless the rupee falls even sharply against major currencies.

When coupled with lower commodity prices, the depreciating rupee may however impact the companies in the metal sector, which formed 8% of the sample's import in 2014-15. Other sectors such as capital goods and power may also feel the pressure of a weaker rupee since their import component is more than the export. On the other hand, companies in the sectors including automobiles, IT and pharma, where export exceeds import, would benefit by a weaker rupee.

Source:economictimes.indiatimes.com