As the war between US, Israel and Iran entered 15th day, amid Middle East crisis, Indian assets dropped on Thursday and the rupee fell to a record low. The rupee fell 0.3% to 92.3575, eclipsing its previous lifetime low of 92.3475 hit earlier in the week.
Experts have warned that the continuing slide of the Indian rupee against the US dollar will have implications that may go far beyond national macroeconomics.
For the unversed, currency depreciation results in the demand for more rupees to buy one dollar. The demand affects trade, investment, prices and government finances.
However, for a state like Odisha, whose economy is deeply linked with mining, metals, energy and emerging services, the consequence of a sliding rupee is likely to prove to be a blessing in disguise.
In fact, the sliding rupee is a boost for mineral exports. As Odisha is one of India’s largest exporters of iron ore, aluminium and steel products, weakening of rupee may prove to be an advantage for exporters— they will receive more rupees for every dollar earned.
Secondly, for overseas buyers, Odisha’s minerals and metal products are likely to become more affordable, which in turn can encourage and surge higher global demand.
Moreover, as export transactions are done through dollars, a rupee downfall will enable exporters to earn more Indian currency for the same dollar revenue. Companies exporting iron ore, pellets, ferro-alloys and aluminium can therefore expect higher profit margins, which in turn can encourage mining companies and metal producers to increase output and exports.
Importantly, increased output and exports can translate into higher royalty payments and mining revenues for the state government.
Similarly, large volumes of iron ore, coal, alumina, steel, etc, that passes through ports of Paradip and Dhamra can also take advantage of this situation. Rupee fall will enable the increase of cargo volumes at these ports, strengthening logistics, shipping and allied industries.
It will also add to the state exchequer. Higher export earnings will boost royalties, mining levies and GST collections. As mining contributes significantly to Odisha’s revenue, increased export activity may translate into greater fiscal inflows for the state government.
Besides, a weaker rupee may allow Odisha-based producers to bargain and offer more competitive prices compared with producers in countries whose currencies are stronger. This in turn will help in consolidating the state’s position as a major supplier of iron ore, aluminium and steel in international markets.
Similarly, a weaker rupee will benefit service sectors such as IT, outsourcing and software services. Cities like Bhubaneswar, which are emerging as IT hubs, could see higher earnings for companies serving global clients.
Interestingly, tourism could also see a marginal gain. The state’s cultural and heritage icons such as Jagannath temple, Sun temple of Konark, and the unexplored beaches may attract tourists from abroad as a weaker rupee will make India a cheaper destination.
In other words, a weaker rupee may temporarily strengthen Odisha’s fiscal position. A state that already enjoys strong mining revenues could see an additional boost from export-driven sectors.
In essence, it’s important to understand that currency depreciation is rarely a one-dimensional story. For Odisha, the weakening rupee is a classic case of economic paradox: while it has the potential to strengthen exports, it is more likely to weaken people’s purchasing power as it will burden the common man with increased inflation and rising prices.
The real challenge, therefore, lies in managing this sensitive situation wisely. Much depends on the policy makers of state. It’s time they focused on leveraging the export advantage while controlling the impact of higher import costs and inflation.
Odisha can take advantage of the current situation by encouraging value addition in mineral resources, expanding manufacturing supply chains within the state and promoting export-oriented services. It would help in transitioning and converting currency volatility into long-term economic gains.
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