India will have to pay ₹68,500 crore extra to repay debt due to weak rupee

India’s short-term debt obligations, which included non-resident deposits as well as overseas commercial borrowings by companies, totaled $217.6 billion in 2017.

Oil isn’t the only headache for India as the rupee slides.

Add external debt to the list. With the currency losing more than 11% to the dollar this year, the country will have to shell out an extra ₹68500 crore ($9.5 billion) when repaying short-term debt in the coming months, according to numbers arrived at by the State Bank of India.

The rupee fell past 72 per dollar to a record low on Thursday, amid a deepening emerging market contagion and the risk of a wider current-account deficit. If the rupee averages 73 to a dollar this year and crude oil, India’s biggest import, averages $76 a barrel for the remaining half of 2018, that could see the country’s oil bill rise by ₹457 billion, Soumya Kanti Ghosh, chief economic adviser at the State Bank, wrote in a note Thursday.

India’s short-term debt obligations, which included non-resident deposits as well as overseas commercial borrowings by companies, totaled $217.6 billion in 2017. Assuming 50% has either been paid in the first half of 2018 or was rolled over to next year, the remaining amount to be repaid in rupees would be ₹7.1 trillion computed using the average exchange rate of 65.1 per dollar in 2017.

“For the second half of the year, assuming that rupee depreciates to an average value of 71.4 per dollar, the debt repayment amount would be ₹7.8 trillion,” he wrote. That would implying an extra cost of nearly ₹70,000 crore.. The analysis did not give details of hedging, if any.

Here are other risks Ghosh listed:

- Increasing bond yields could add to the government’s fiscal costs, which is estimated at up to 0.7% of gross domestic product

- A 10% depreciation in the rupee could add up to 50 basis points to inflation, as per RBI estimates, besides pushing the oil import bill higher