Asymmetric Sectoral Impact of Exchange Rate Movements in India: Evidence from the IT Services Sector and Fuel-Intensive Industries

Abstract

Exchange rate fluctuations are often treated as a uniform macroeconomic shock, however their real effects depend on how a sector’s revenues and costs are exposed to a foreign currency. This study investigates the asymmetric sectoral impact of USD/INR exchange rate movements in India over the period of FY2014-15 to FY2024-25, comparing India’s export-oriented IT services sector to the import-oriented fuel-dependent industries with structurally opposite currency exposures. By collecting annual data for the exchange rate, net software export revenues, firmlevel operating margins for seven IT companies, Brent crude oil prices, India’s oil import bill, and Aviation Turbine Fuel Consumption, the study tests three hypotheses concerning revenue, cost, and net sectoral effects of currency depreciation. Results show a very strong positive association between INR depreciation and IT services export revenue, but it does not translate into improved profitability for the firms (sector-average operating margins), showing a negative correlation with the exchange rate, indicating that rising domestic costs offset currency-driven revenue gains. For fuel-intensive sectors, the exchange rate shows no significant independent relationship with global crude prices, yet a significant moderate relationship with India’s oil import bill, which confirms that currency depreciation amplifies energy import costs as a separate mechanism from global price shocks. These findings demonstrate that exchange rate movements simultaneously function as a competitive advantage for some sectors and a structural cost burden for others, which underscores the need for sector-differentiated approaches to exchange rate policies and corporate risk management in import-dependent, trade integrated economies like India.