Rupee in 2018 - Projection for 2019

Indian Rupee had quite a tough year in 2018.  In 2018 INR depreciated by 10%.

This depreciation of Rupee almost tracks the movement of oil prices.

Oil prices increased - Rupee depreciated, oil prices decreased - Rupee appreciated.

Interestingly INR was the currency which was performing at the worst amongst all emerging economy currencies till October when oil prices were at its peak, thereafter in an U-turn INR became the best performing emerging economy currency when there was dip in oil prices.

The other factors apart from oil, which impacted Rupee movement significantly in 2018 are

• Trade war between USA & China
• Fed rate hike - 4 rate hikes made US Dollar more attractive
• Turkey LIRA crises - this had a sentimental effect on INR
• Movement of stock market - (see graph below) - a 6% increase in stock market in 2018 contained to some extent the depreciation of the Rupee

What lies ahead in 2019 for the Rupee

The below factors will weigh on the Rupee in 2019

• Growth fundamentals of India economy - GDP growth is projected to be positive @ 7.3%.  Inflation will be low.  Industrial & Agricultural growth will be moderate.  This will have a appreciating impact on Rupee
• Political stability - In the general election of 2019 if there is a stable government -  It will have a appreciating impact on Rupee.  If there is a hung parliament It will have a depreciating impact on Rupee
• Fed reserve planned rate hikes in 2019.  It will have a depreciating impact on Rupee
• Oil is not projected to be very volatile and will be more stable.  It will have a appreciating impact on Rupee. 

My Projection : Overall Rupee will be less volatile in 2019 and should move in the range between 68 to 72 for the full year of 2019

Oil Pricing - Let's be fair on increase & decrease

Oil prices in India have been on a dynamic pricing mechanism (DPM) for the past 18 months - from 16th June 2017 (the domestic fuel prices are dependent upon 15 days average international fuel prices taking into factor exchange rates of Rupee).  I welcomed this move as this removes subsidies and brings in transparency in pricing.  The dynamic pricing mechanism was intended to ensure that the benefit of even the smallest change in international oil prices can be passed down the line to the consumers.  Consider the below table, does this reflect the principle of DPM?

Oil prices decreased by 27% in 2018 whereas there is no reduction in Petrol prices during the year.  Technically if DPM were to work perfectly and all other items of pricing (taxes, refining costs, freight costs) remain constant retail price of Petrol in Chennai should have been atleast 11% lower compared to 1.1.2018 and should be retailing around Rs.64.55 on 24.12.2018.  True we have a 15 days average mechanism take away another 5% for it, and retail prices should be Rs.68.18 and not Rs.72.48 per litre.

To be fair we should also talk about increases not passed on when the prices were at the peak on 4th October 2018

The Government at this point intervened and reduced taxes which dropped prices approximately by Rs.4 per litre of petrol. 

DPM should be fair, it does not reflect its true strength when Government Agencies, Oil companies intervene.  DPM should be left to market forces without any intervention.  For this taxes need to be aligned under GST, on Petrol currently Rs.36 is on account of taxes which contribute 49% of retail prices of petrol.  Taxes should not be increased / decreased to suit end pricing requirements.  Oil being a prime mover of the economy should be priced fairly reflecting market conditions.  With inflation hitting lows it is imperative a fair oil pricing will lead to further growth dynamism in the economy.

Moving forward good news is petrol / diesel prices will reduce atleast by around 10% in the next 15 days as I do not foresee any increase in global oil prices and currency also will hold steady in the short term. 

GST - 31st Council Meeting - Highlights

The below are some of the key highlights of 31st GST council meeting held on 22nd December 2018. 

1. Due date for filing of annual returns in forms GSTR-9, GSTR-9A and audit in form GSTR-9C to be extended to 31.07.2018 for the  financial year 2017-18. 
2. Physical visit to GST office for submission of documents for refund will be dispensed with.  Provisions to upload documents electronically will be enabled shortly
3. Refund for excess payment of tax, if any, can be obtained through Form GST RFD-01A
4. Returns filing to be modified and new return format to be introduced shortly which will be mandatory from 1.7.2019
5. ITC in relation to invoices issued by the supplier during FY 2017-18 may be availed by the recipient till the due date for furnishing of FORM GSTR-3B for the month of March, 2019, subject to specified conditions (conditions are yet to be notified).
6. Security services provided by a registered person (except to Government) and who has registration under TDS and also entities registered under composition scheme will be put under RCM
7. Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.

Reduction (Changes) in Rates of goods

Reduction / Changes in rates of services