27.11.2025

India’s Oil Imports and Currency Depreciation

Context

The rupee’s move toward ₹83–90 per USD reflects rising dollar demand driven by India’s import-heavy structure, especially crude oil dependence, which continually pressures the currency in global trade. (~33 words)

Mechanism of Depreciation: Demand–Supply Dynamics

Dollar-Dominated Trade

• Global trade is largely dollar-invoiced.
   
• Indian importers buy dollars to pay for imports, increasing dollar demand and supplying rupees, weakening the currency.
   

Impact of High Import Bills

• Heavy crude oil imports raise dollar demand.
   
• A weaker rupee makes imports costlier, further widening the bill and reinforcing depreciation in a feedback loop.
   

Key Imports Driving India’s Import Bill

1. Crude Oil (Primary Driver)

• Accounts for a major share of India’s import bill.
   
• Rising global oil prices intensify rupee pressure.
   

2. Other Major Imports

• Gold
   
• Electronics
   
• Fertilisers
   
• Defence equipment
   These add to external payments, raising dollar demand.
   

Depreciation vs Devaluation

Depreciation

• Market-driven fall in currency value
   
• Arises from forex demand–supply changes
   

Devaluation

• Policy decision under fixed/pegged regimes
   
• Officially lowering currency value
   

Solutions and Interventions

1. Reducing Import Dependence

• Lower crude oil reliance is key to stability.
   
• Measures like 20% ethanol blending reduce fuel imports and ease CAD pressures.
   

2. RBI’s Role

• RBI sells dollars from reserves during volatility, increasing supply and supporting the rupee.
   

3. Attracting Foreign Capital

• Higher FDI and NRI inflows raise rupee demand.
   
• Incentives target manufacturing, real estate, and financial markets.
   

4. Boosting Exports

• Strengthening manufacturing and competitiveness ensures stable forex inflows.
   
• Electronics, textiles, pharma, and engineering exports support long-term currency stability.
   

Conclusion

High crude oil and essential imports structurally weaken the rupee by elevating dollar demand. Reducing import dependence, expanding exports, attracting foreign capital, and timely RBI intervention together are crucial for long-term currency stability.