When the Rupee Falls, Who Bears the Cost? Exchange-Rate Depreciation, Import Dependence, and Real Wages in India
When the Rupee Falls, Who Bears the Cost? Exchange-Rate Depreciation, Import Dependence, and Real Wages in India
Rupees falling in value is normally framed as a technical issue by either economists, policymakers, or on business news panels. To many Indians though, a lower-valued Rupee is not an abstract concept as it impacts their lives on a very basic level – the cost of petrol when refuelling cars, increased electrical bills, and rising overall food costs.
The rupee’s value has steadily dropped against the dollar since about 2015 until 2025. At the same time, India has remained highly dependent on imports, including oil, machinery, and electronic equipment, as well as many types of industrial materials. Because of this reliance, when the rupee falls in value, the costs of many every-day products rise, without people realising that this is happening.
The story discusses the manner in which changes in the rupee’s exchange rate flow through the economy in terms of how high import costs increase the prices people pay for goods purchased each day, to the consequences these price increases may have on employees’ wages, and ultimately to the basic question: who bears the cost of the rupee falling in value?
The Long Slide: A Decade of Rupee Depreciation
The USD/INR yearly exchange rate chart explains how the exchange rate has changed between 2015 and 2025. Rupee depreciated from the mid-60s in the mid-2010s to levels around 90 by the end of 2025 (see chart 1), based on observed “monthly average exchange-rate data” . While the path includes short-term fluctuations, the longer-run trend of rupee depreciation is clearly evident.
There are many short-term fluctuations that can be attributed to various global shock events such as oil price volatility, the COVID-19 pandemic, and the Federal Reserve’s interest rate tightening policy, but the overall trend direction of the USD/INR exchange rate has been very clear. A decade ago, it required a much smaller amount of rupees to buy one dollar than it does today. This is especially significant because India is not just a small importer; India is an economy with high import dependence for energy and capital goods.
Why Imports Matter: India’s Import Structure
The level of impact (positive or negative) on a country by a weak currency can differ, based on its imports. As shown in chart 2, petroleum products and crude oil dominate all imports into India (around 25.7% in 2025). Together, they account for approximately one-third of all imports. A large portion of the rest of the imports consists of machinery, electronic equipment, transportation products, chemical products and coal.
It is not very important whether crude was down slightly from last year or up slightly. The significant point is that even with the decline in crude imported, it is obvious that India still remains a highly dependent nation for fuel and what is referred to as “input goods” (machinery, electronic equipment, etc.). As the rupee depreciates, so too do all the costs associated with production, transportation and distribution of virtually all goods/products within India.
form the largest component)-2025
Figure 1 is a Stylized diagram of the way exchange rates are passed through the economy when the economy relies heavily on imported energy and capital goods. By having the Rupee depreciate against the U.S. dollar, it will increase the cost of the domestic currency to purchase imports: this means the costs of production (including production, transportation, energy, etc.) will rise, thus creating an increase in the costs of fuel, electricity, and transportation for consumers. Because nominal wages are slow to adjust, this creates downward pressure on wages, causing real wages to be compressed. This graphic demonstrates the logical flow of relationship, but not the casual relationship between one and another.
The Import Bill Effect: Same Barrels, Higher Rupees
Import values for major goods are shown in the bar chart below (chart 3). Global price volatility can increase the dollar amount of imports through rupee (INR) declines relative to the US dollar (USD). This chart illustrates sharp increases over time for crude oil, electronics, machinery and coal increased in rupee (INR) value. The transmission channel of this impact is summarized in figure 1. Energy is a key input for transportation, fertilizer production, manufacturing, and electricity generation. The import of electronics and machinery will add to the costs associated with maintaining and repairing capital equipment. These costs do not remain at the point of entry into India; they flow throughout the economy.
Bars: Financial years 2019–20 to 2024–25
From Ports to Prices: Fuel Inflation Takes Hold
A weaker rupee makes the cost of imports at the port more expensive and ultimately affects the prices of commodities, paid by the end consumer (as explained in figure 1).
This dual-axis graph (chart 4) has two visual elements placed on top of each other: The exchange rate and the Fuel & Light portion of the CPI. Although these two items use different scales, the two share a striking correlation in their movements together. Generally, the correlation is particularly noticeable during times of continuous rupee depreciation. When rupee-denominated imported energy prices increase, the Fuel CPI index increases as well. Although taxes, subsidies, and administered pricing can affect this connection, currency depreciation raises underlying cost pressures that constrain pricing over time and consequently affects the overall cost.
(note- “Exchange-rate pass-through to domestic fuel prices in India is partial as it is further mediated by fiscal policy, oil marketing company pricing strategies, and government intervention”)
Nominal Wages: Rising, But Slowly
Higher prices do not automatically translate into higher wages. To look into , the national wage averages based on agricultural and non-agricultural worker wages on a monthly basis are compiled. Wages increased in both sectors over time, and while non-agriculture workers earn higher wages than agriculture ones, they experienced similar trends in wage growth. The key difference is how these wages increased, with the CPI, especially fuel CPI, with large jumps, while wages increased at a slow and gradual pace (chart 5).
The difference between the two is very large. Nominal wages increased only marginally often by ₹5–₹10 per day, whereas fuel price increases much more quickly, impacting their cost of living related to the cost of cooking Gas, transportation and electricity.
Panels: Agriculture vs Non-Agriculture (note- This is a directional comparison, not a level comparison)
The Real Story: Inflation-Adjusted Wages
While nominal wages only provide part of the explanation as to why people do what they do, it is purchasing power that ultimately will determine behaviours. The information contained in chart 6 conveys the most important message. After adjusting for fuel inflation, there is minimal or no growth in real wages (deflation); in some months, there may even be decreases in real wage growth. Althought, according to the National Statistical Office (MoSPI, 2023) fuel and energy carry only about a 7 per cent weight in the CPI basket compared to 46 per cent for food and beverages, rupee depreciation disproportionately raises fuel costs, with wider effects on prices and household expenses.
Agricultural workers appear particularly exposed by this, but all non-agricultural workers are noticing that their wages have not increased. The average nominal wage between 2023 and 2025 was higher than prior periods, but the average “real wage growth” was significantly lower and in many months, even decreased. This means that while people may have received an increase in terms of nominal value, they were still purchasing less with their salaries.
Construction:
Real Wage = Nominal Wage ÷ (Fuel CPI / 100)
(note- “CPI Fuel & Light is preferred over the headline CPI because it reflects the most immediate and direct way to measure how exchange-rate depreciation impacts prices for consumers in an economy like India, which depends heavily on imports” (Banerjee and Bhattacharya, 2025).
Deflator: Fuel & Light CPI Base: CPI normalized to 100
The Final Push: The Last Two Years of Rupee Weakness
The last two years (the period established on this final chart 7) reflect the rupee’s continued decline and reaching an even lower point. During this time, fuel has consistently risen causing additional inflation, along with visible pressure on real wages. In the last two years rupee has depreciated a lot. The trend of the rupee going from the 83.08 to 89.1, shows a clear depreciation of 8.23%. Since the wage datasets line up with these changes and cover the same time span, the observed patterns reflect astrong temporal overlap consistent with exchange-rate-driven cost pressures, even as other macroeconomic factors also influence wage outcomes.
Who Pays the Price?
Together, these pieces of data paint a very clear picture:
- 1. The Indian rupee has been steadily depreciating;
- 2. The composition of India’s imports consists primarily of petroleum products and other industrial inputs;
- 3. The depreciation of the rupee results in the increased cost of imported goods measured in rupee terms;
- 4. The cost of imported goods drives the price increase of oil and gas;
- 5. Workers’ wages are growing at an uneven pace;
- 6. Real wages of vulnerable workers will continue to lag behind inflation;
While depreciation benefits exporters and improves fiscal revenues via fuel taxation, these gains are unevenly distributed and often delayed relative to the immediate rise in living costs. Ultimately, the burden of currency depreciation does not fall on the abstract statistic known as the balance of payments but on the worker whose income cannot keep pace with the rising cost of living. A weaker currency can provide some benefits to exporters and stimulate growth in specific sectors, the day-to-day costs of living incurred by an economy with high import dependence , will be felt most visibly in everyday household expenses by workers at the gas stations, power plants, and grocery stores.
Sources
This analysis draws exclusively on official and publicly available Indian macroeconomic datasets:
- Reserve Bank of India (RBI)
- Exchange rate data (USD–INR monthly-Table 204 and yearly averages – Table 136)
- Ministry of Statistics and Programme Implementation (MoSPI)
- Directorate General of Commercial Intelligence and Statistics (DGCIS)
- Labour Bureau / Ministry of Labour & Employment
- Academic References
- Banerjee, S. and Bhattacharya, R. (2025), Inflation Dynamics in India During the Twin Shocks of COVID-19 and Ukraine War, South Asian Journal of Macroeconomics and Public Finance.
All data used are the latest available at the time of writing and are sourced from official government publications.
Methodology
- Exchange Rate TrendsUSD–INR trends are analysed using monthly and yearly average exchange-rate data published by the RBI. A higher USD–INR value indicates rupee depreciation.
- Import Structure AnalysisImport composition is examined using commodity-wise import shares. The analysis focuses on energy and industrial inputs to assess India’s exposure to exchange-rate movements.
- Import Cost TransmissionChanges in import values are evaluated in rupee terms to capture the combined effect of global price movements and exchange-rate depreciation.
- Inflation LinkageFuel & Light CPI is used as the primary inflation indicator to reflect the most direct transmission of currency depreciation in an import-dependent economy. CPI is treated as an index, not a price level.
- Wage AnalysisNominal wages for agricultural and non-agricultural workers are analysed over time.Real wages are calculated by deflating nominal wages using Fuel CPI:Real Wage = Nominal Wage ÷ (Fuel CPI / 100)
- InterpretationThe analysis focuses on directional relationships and structural patterns, not on short-term causality. Observed correlations are interpreted alongside known policy, fiscal, and market interventions that may mediate transmission.
Notes & Limitations
- Exchange-rate pass-through to domestic prices in India is partial and influenced by taxation, subsidies, and administered pricing.
- Wage data represent averages and may mask regional or sector-specific variations.
- The analysis is intended to explain structural dynamics, not to attribute outcomes to any specific policy decision.
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