Indian Rupee Hits Historic Low Against US Dollar; Implications For Nigeria

The Indian Rupee reached a record low against the US Dollar on Wednesday, depreciating by 9 paise to trade at ₹85.83 per USD. This historic drop is attributed to the strengthening of the US Dollar and rising crude oil prices, which continue to strain the Indian economy. Subdued domestic equity markets have also contributed to the Rupee’s decline.

India’s Economic Turbulence

India’s slowing economy can be linked to a weaker demand for exports due to economic slowdowns in major economies like the US, Europe, and China as well as the growing global tensions.

India is a global leader in software development, IT-enabled services (ITES), and outsourcing as well as being major players in the export of refined petroleum, diesel, and other fuel derivatives. The country also exports jewelries, pharmaceutical products and textiles.

India is a major exporter of Basmati Rice and spices including black pepper, cardamom, and turmeric which it exports to over 150 countries. The country also exports chemicals, fertilizers, Automobiles and Industrial machinery, electrical equipment, iron and steel products, and transportation equipment which is its largest export by value.

Internally, the country battles rising food and fuel prices impacting consumer spending, reduced agricultural output in some regions as well as limited fiscal space for increased public spending due to pre-existing commitments.

The Reserve Bank of India (RBI) has had to raise interest rates to curb inflation, thus increasing borrowing costs for businesses and consumers and exerting pressure on the Rupee.

India’s Lowered Economic Growth Projection

On Tuesday, the Indian government released data estimating the country’s economic growth rate for 2024-25 at 6.4%, marking a four-year low. This decline is driven by poor performance in the manufacturing and services sectors.

The projected growth rate of 6.4% is India’s lowest since the COVID-19 pandemic year of 2020-21, when the economy contracted by 5.8%. This figure is also lower than the 6.6% forecasted by the Reserve Bank of India (RBI) in December 2024, according to the National Statistics Office (NSO).

Implications For Nigeria

The fall in the value of the Indian Rupee against the US Dollar makes it difficult for the country being one of the biggest oil importers from Nigeria to afford it as it becomes expensive in terms of Indian Rupees.

Nigeria exports non-oil products like cashews, cocoa, and other agricultural goods to India and a weaker Rupee may reduce India’s purchasing power, leading to decreased demand for these goods. The decline in the value of the Rupee also makes it more difficult for Indian companies operating in Nigeria to finance their operations which might make Indian firms cautious about further investments in Nigeria.

The prices of Nigeria’s imports from India especially in the pharmaceutical sector is also expected to rise due to the decline in the Rupee’s value and the reliance on the dollar in conducting such trade as firms would now have to increase prices of exports to break even potentially exacerbating inflation in Nigeria. Strengthening trade diversification and exploring local currency trade agreements could help mitigate these impacts.

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