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. 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 appears to insulate farmers from price hikes of other key soil nutrients (like DAP and NPK) too, by hiking subsidies in line with their global prices.
However, economists are divided on the macroeconomic implcations 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,” Rajv Kumar, former vice chairman of Niti Aayog told FE. The weaker rupee also encourages foreign tourist arrivals which are again highly employment generating, he added.
What do experts say ?
Another view is that high import dependence, slowing exports, and unstable capital flows are behind the currency’s fall, a fact that doesn’t augur well for the economy.
Saumitra Bhaduri, professor at Madra School of Economics said: “The depreciation is not cyclical but structural. If global risk sentiment deteriorates or if US yields remain the same, more capital could leave, pushing the rupee down further.” He cautioned that a weaker rupee touches almost every part of the economy. “A sustained fall increases inflation risk, erodes household purchasing power, raises borrowing costs for companies with foreign-currency debt, and puts additional pressure on the RBI to step in,” he said.
According to Kumar, the argument that a weaker rupee imports inflation is true only for the very short term. In the medium term the high price of imported goods and services should and does choke demand and encourages import substitution, he said.
All the Asian tigers and China achieved high rates of economic growth on the basis of relatively weak currencies, he recalled. “We are an exception in encouraging a public narrative that sees a strong rupee albeit with weak exports and a structural CAD as a desirable feature. This must change,” he asserted.
On commodities
On commodities, Bank of Baroda chief economist Madan Sabnavis noted that the most immediate impact of a weaker rupee is visible in wholesale inflation rather than retail.
“In case of oil and fertilisers, the impact will be on WPI and not CPI directly,” Sabnavis said, pointing out that petrol prices remain administered, with the burden shared between the government and oil marketing companies. Edible oils could see higher retail prices, partially offsetting the GST cuts announced earlier.
Yet, the overall inflation effect remains muted. The rupee has weakened around 4–4.5% since March, which Sabnavis estimated will push CPI inflation higher by only 20–30 basis points. Most CPI components have limited import exposure, while fuel items see only partial passthrough, Sabnavis added.
Senior economist NR Bhanumurthy said that while this depreciation will have a positive impact on services exports, manufacturing exports (especially those having larger import content such as gems & jewellery) could take a hit. The RBI may have to confront managing both expected widening in current account deficit as well as threat of imported inflation. “While the central bank has sufficient cushion in terms of reserves, too much intervention to contain currency depreciation could lead to other open-economy macroeconomic complications,” he cauntioned.
India Rating chief economist Devendra Pant argued that with inflation currently subdued, higher landed costs of raw materials are unlikely to significantly alter the trajectory.
Similarly, Ranen Banerjee, Partner and Economic Advisory Leader, PwC India, pegs the imported inflation effect at “no more than 10 basis points”, stressing that a large share of imported inputs is re-exported through refined petroleum or manufacturing value chains, offering some natural hedging.
The CPI inflation eased to 0.3% in October 2025, helped by GST rationalisation and deflation in food and beverages. Experts noted that edible oil inflation, though moderating, stayed elevated at 11.2%, limiting further relief. Global vegetable oil prices rose 10.9% YoY, while Kharif oilseed sowing fell 5.3%, keeping pressures intact amid high import dependence. Government cuts in customs duty and GST on edible oils should offer some cushion. Globally, commodity prices are likely to stay benign due to weak growth, China’s overcapacity, and OPEC’s move to raise crude output. In October, RBI had forecast CPI inflation in Q3FY26 at 1.8% and at 4.0% for Q4.
With the recent currency depreciation, the cost of imported urea as well as cost of production of domestic urea is expected to rise. However, the recent softening of the natural gas prices is expected to partially temper the impact, said Varun Gogia, Assistant Vice President & Sector Head, Icra Ratings.
For FY26, the government has projected fertiliser subsidies of over Rs 1.85 lakh crore, which includes Rs 18,500 crore provided as part of the first supplementary demand for grants recently, as against the budget estimate of Rs 1.67 lakh crore. The rise in subsidy was factoring in current global prices.
On fertilisers, Sabnavis acknowledges that rupee depreciation does raise import and subsidy costs, but notes that “large amounts are hedged” and that budget calculations typically assume around 4% annual depreciation. Thus, the additional subsidy outgo is expected to be limited. Dev adds that depreciation in FY26 is actually marginally below the long-term average, reducing the likelihood of fiscal slippage. Banerjee echoed this view, saying that even a 1–2 percentage point extra depreciation adds little to the overall subsidy bill.
Budget assumptions, too, remain largely intact. Dereciation within the historical band does not materially alter fiscal projections, especially with lower global oil prices offering offsetting savings. Over the long term, Sabnavis argued that fertiliser policy shifts hinge more on global prices than currency moves, although sharper-than-expected depreciation could prompt a reassessment of subsidy allocations.
Icra does not expect any structural change in policy decisions related to the fertiliser sector driven by the currency depreciation, Gogia said.