Street Talk
Expert Opinion
Indian rupee (INR) is making headlines for its record fall against the US dollar (USD) to 88.1, touched on February 10. Though the rupee was at 87.41 per USD at the time of writing this column, the experts have predicted the INR sliding past 90 per dollar this year.
Experts and currency analysts have currently engaged themselves in debating the present weakening of the rupee as well as its future against the dollar. They have been showing consensus that the main reason behind a weakening rupee is strengthening of the US dollar amid an improved macroeconomic scenario in the US.
Here I am reminded of a statement by the Finance Minister Nirmala Sitharman at a media briefing in Washington D.C. in October 2022 when she said, “The Indian Rupee hasn’t weakened but in reality, it is the US Dollar that has strengthened.” At that time the Indian rupee had dropped nearly 10% that year against the dollar and was at the cusp of Rs.83 against a dollar.
Basically, despite the slide, the rupee has remained among the world’s most stable currencies. “Till date, rupee has depreciated by nearly 3 per cent against US dollar, still in lowest echelon when compared with other countries,” an SBI report stated.
Global Impact:
All over the world, the countries, big or small, are expressing pain over the unprecedented surge in the dollar as their local currencies are getting weaker with every passing day. In fact, it is a distressful situation for the rest of the world as the surge in dollar has triggered soaring inflation with skyrocketing prices of essential as well as non-essential commodities, leading to acute financial hardships for common households.
To be precise, a strong dollar with a tendency to further strengthen against other currencies leads to expensive imports. Those who borrow in dollars have to shell out more for less because more local currency is needed to convert into dollars when dollar-based loans are to be repaid. A strong dollar compels the central banks around the world to raise interest rates.
Currency of a country acts as a barometer to measure its temperature of economic activity. A strong economy means a stronger currency. Similarly, a weak economic growth reflects the weak currency of that country. Pertinently, the rate of inflation and indebtedness of a country impacts the value of a currency and a currency losing value is directly related with the fiscal and trade deficits.
We can sum up that a strong dollar is bad news for the global economy.
Impact on Indian Households:
Whatever the reasons of a weak rupee and strong dollar, it is always bad news for common consumers as most of the everyday life essentials as well as non-essentials get costlier. Cost of imports goes up as importers are paying in dollars. The impact is huge on oil and gas as India’s import dependency on crude oil is nearly 88%. Impact on crude oil means escalation in the prices of petrol and diesel. Any upward movement in the prices of fuel increases the cost of transportation of goods. The consumers, whether buying food items or any other item, have to bear this additional cost. The result would be that a common man’s budget has to face the brunt of the weakening rupee.
So, for a common man, the falling rupee hits where it hurts the most – the pocket. It has direct bearing on the cost of living where essentials such as food, smart gadgets like computers, laptops, mobile phones etc see rising prices.
Education expenses of students who have taken loans to fund their foreign degrees become expensive, as they are made to pay their fees and other charges in dollars. For instance, a student joined a foreign university some time back when a dollar would cost Rs.71. He would pay a fee of $1000 (Rs.71,000) per month. Midway through his studies, the rupee fell to over Rs.86 per dollar and this means he has to pay over Rs.86,000 per month now against Rs.71,000 when he had sought admission in the university.
Impact on the automobile sector is also a reality. Input costs go up as these companies use imported components. Besides, many have foreign currency loans in the form of external commercial borrowings and foreign currency convertible bonds. To keep their profitability insulated from such situations, the auto companies have no other choice but to pass on the burden to customers.
Precisely, when imports cost more, rising inflation brings everyone under pressure and eats into the common household budget. This imported inflation hurts every household by making everyday life more expensive.
Winners In Rupee Fall:
Export-oriented industries earning in dollars like information technology (IT) services, pharmaceutical companies, and textile businesses benefit every time rupee weakens against the dollar.
In IT Services, corporates like Infosys and Tata Consultancy Services (TCS) make most of their money in dollars. Many Indian pharmaceutical companies are exporters to the US and Europe, making weak rupee to work in their favour. Even Indian textile companies as exporters are more competitive in the global market and beneficiaries of a strong dollar against the weaker rupee.
A weak rupee lets foreign investors in Indian markets to get more for their dollars. Their entry boosts Indian stocks and attracts more investment into the country’s economy.
However, despite some sectors making more earnings out of the sliding rupee against the dollar, the overall impact is negative on the overall economy.
Lessons to Follow:
The Indian rupee in 1947 is not the same as we see today. Its appearance has undergone regular changes. But what it has consistently lost is purchasing power. Consequent to the political and economic conditions, its value has changed.
Today, every one of us continually experiences the heat of rupee losing value. Marketing mantra ‘more for less’ may be echoing far and wide, but the depreciating value of rupee only tells us a vice versa story, that is ‘less for more’.
Basically it’s inflationary pressure which has been eating up income levels. Price rise has remained a serious concern for every generation. So under the circumstances, it’s not enough to own a rupee, but it makes a sense makes to know the value of rupee which we possess in our wallet. To make rupee worthy for ourselves, we have to understand its consequent fall in the value. The basic theory is that we have been spending more than we have been earning and that is causing stress on our economy and also the currency (rupee).
In short, the falling rupee is making a serious dent on our individual finances as it is putting huge pressure on the already high inflation with essential and other imports getting costlier. So under the circumstances, when rupee is losing value, you need to navigate your finances effectively and efficiently through these rough waters.
(The author is Editor-in-Chief, Straight Talk Communications. He is former Head of Corporate Communications & CSR Department and Internal Communication & Knowledge Management Department, J & K Bank)