New Delhi [India], May 15 (ANI): The Indian rupee is likely to remain under pressure due to weakening capital inflows, rising import dependence, elevated crude oil prices and a widening current account deficit, Devendra Pant, Chief Economist at India Ratings and Research, told ANI on Friday.

'I will not say capital inflows have dried up, they have reduced significantly. There is an outflow from your portfolio investments. Now in this situation, whatever increase in your current account, that is not able to be funded by the capital inflows, and that is creating pressure on your currency,' Pant told ANI.

Pant said India remains heavily dependent on imports of crude oil, edible oil, pulses and electronic goods, which continues to strain the country's external balances.

'India has a lot of import dependence. Import dependence on crude oil, import dependence on edible oil, import dependence on pulses, import dependence on electronic goods because we do not have that kind of manufacturing setup here where we manufacture chips and other components,' he said.

According to Pant, India earns a substantial surplus through software exports, services exports and remittances, but the inflows are still insufficient to fully offset the merchandise trade deficit, resulting in a current account deficit.

'Because of all these factors put together, we are seeing a situation the currency is continuously under pressure,' Pant said.

He further noted that foreign portfolio investors tend to shift money across markets in search of better returns, resulting in outflows from India during periods of global uncertainty.

'What is happening in the stock market and other markets, where their rupees are giving more returns, portfolio investors will always start jumping from one country to another country where they get more return,' Pant said.

The economist said the Indian rupee depreciated by around 5 per cent on average during the last fiscal year because of these pressures.

Pant also highlighted the impact of rising crude oil prices on India's macroeconomic stability, saying every USD 10 per barrel increase in crude oil prices raises India's current account deficit by nearly USD 16.7 billion.

He said India imported crude oil and crude products worth nearly USD 100 billion in the last fiscal year, while gold imports stood at around USD 72 billion.

'Gold does not have any economic value. It is more as an asset class. Most of it is lying in bank lockers,' Pant said, explaining the rationale behind higher import duties and tighter gold import rules.

On fuel prices, Pant said the government had earlier reduced excise duty on petrol and diesel by around Rs 10 per litre, taking a hit of nearly Rs 1.7 lakh crore on its balance sheet to shield consumers.

He said oil marketing companies had also absorbed losses for some time, but rising global crude prices eventually led to a Rs 3 per litre increase in petrol and diesel prices and a Rs 2 per kg increase in CNG prices.

'Further rise cannot be ruled out if oil remains elevated,' Pant said.

On refinery margins, Pant said companies with strong gross refining margins may be able to offset part of the losses from fuel marketing operations, but the final impact would become clearer after quarterly earnings.

Pant also warned that inflationary pressures may rise again due to higher crude prices and partial pass-through into retail fuel prices.

'With some amount of pass-through, we are seeing inflation is going to rise again. We believe it is likely to remain within around 4 per cent, but the deficit may increase because we may have higher fertiliser subsidy, higher oil subsidy,' he said.

Pant added that weaker real wage growth and pressure on urban consumption demand could affect economic growth prospects. He said India Ratings and Research will release its revised GDP growth forecast in the middle of next week.

On agriculture, Pant said the progress of the monsoon would remain more critical than fertiliser shortages for the upcoming Kharif season. He said rainfall distribution during July and early August would be crucial for sowing activity. (ANI)