SBI report claims rupee depreciation by 8-10% against the US Dollar, due to Trump’s US election win
Donald Trump’s return to Presidency may depreciate the Indian Rupee by 8-10% against the US Dollar as predicted by a recent State Bank of India (SBI) report.
The SBI report on ‘US Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy, came at a time when the rupee touched an all-time low at 84.38 against the dollar. These fluctuations pose direct challenges as well as possible opportunities for Indian businesses.
The businesses can exploit a weak rupee in the global marketplace to come out successful even during economic volatility. Adaptation of strategic responses in the wake of currency depreciation is, therefore, essential for an Indian business. Let’s explore the impact of rupee depreciation and measures that can be taken by Indian businesses to navigate it in detail.
Impact of Rupee Depreciation on Indian Businesses
The impact of rupee depreciation on Indian businesses is multifaceted and highly sensitive in terms of their dependence on imports or exports. Exporters will benefit from currency depreciation as the lower price of Indian goods compared to the rest of the world, will increase their sales. Industries exporting textiles, agriculture, and manufacturing may benefit the most.
On the other hand, for businesses relying on imports for raw materials in the production process, the importation costs will rise. This surge will especially be experienced by the oil and gas industries. This will compress profit margins and impact the bottom-line stability, thus demanding careful financial management.
Depreciation can also lead to inflation, especially in the highly consumed oil and food items imported into India, proving further woes for Indian businesses. Imported inflation would push up the cost of operations in several sectors, impacting the pricing models, consumer demand, and subsequently the margins.
Strategies for Indian Businesses Amid Rupee Depreciation
Diversifying Supply Chains: A diversified supply chain will help to reduce reliance on imports and will provide a hedge against costs. In addition, a firm may decide to obtain more input materials nearer their place of operations. This will save them from being hit by fluctuating currencies. Importing raw materials from countries with relatively weaker currencies can keep costs within budgetary limits.
Hedging Against Currency Risks: Hedging strategies might include forward contracts or options to lock in an exchange rate and thereby protect a firm from adverse currency movements. For companies generating large foreign revenues, there is a ‘natural hedge’ in simply sourcing inputs in the same foreign currency. Therefore, matching revenue and expense streams with minimal dependence on the stability of the domestic currency.
Targeting Export Markets: A low rupee offers the perfect opportunity for business firms to expand into foreign markets. It also allows businesses to tap markets where demand for Indian goods is high while arbitraging advantageous currency conditions. Moreover, investment in value-added processes to enhance product offerings can create an appeal for more products and keep prices levelled in international markets during price fluctuations.
Cost Management Strategies: Operational streamlining by businesses will improve productivity and waste reduction. The dynamic pricing models allow business enterprises to charge some part of the increased costs to consumers without losing the market share. Businesses that can absorb the impacts of rupee depreciation through flexibility in pricing stand a good chance to accomplish the task.
Technology Investment: Adopting advanced technology can increase the scope of supply chain management and implement forecasting more effectively. This will enable companies to respond rapidly to changes in currency. Digital platforms help to ensure resource distribution. Changes in the supply chain and different pricing policies can be carried out through data-driven decision-making. Thus, significantly aiding in dealing with rupee depreciation and economic volatility.
Long-term Financial Planning: Building resilience requires firms to maintain tight financial strategies, including management of reserve creation in periods of good performance. These reserves will serve as a cushion when economic times are not good. It is also possible for businesses to protect themselves against risks by liaising with financial advisors and coming up with a balanced portfolio for investment.
Conclusion
The depreciation of the rupee throws various challenges but it also gives Indian businesses a chance to adjust and capitalise. If companies can succeed in managing costs effectively and currency hedging, they may be able to gain an international competitive edge. Indian businesses can turn their weakness during the rupee deprecation into opportunities for growth and resilience by planning well and executing strategies in time.
