Falling Rupee – Impact On You, Impact You Can Make

With the Indian Rupee touching an all-time low of 58.98 against one USD, everyone is anxious to know how one is affected, how one can benefit from it or how one can contribute to stop that trend.

Why is Rupee falling?

  1. Widening trade deficit
    1. Sowing Season Syndrome – demand for fertilizers, chemicals and oil picks up with the start of Sowing season.
    2. With the fall in the price of gold prices, demand for gold has picked up leading to more import of gold.
  2. Dollar has strengthened in value on the hope that U.S. Federal Reserve may end its quantitative easing soon. This is also evident from the fact that not only Indian Rupees but also other developing nation’s currencies such as Rand, Taka and Rupiah are falling.
  3. There is also a speculation that RBI would have purchased close to 1 billion USD since end of March 2013 to boost up its foreign reserve.

Reference: Why is the rupee falling despite record portfolio inflows?

Impact On You

Positive

  1. Export Oriented Industries such as Software, Jewelry, Food Grains, Cotton, Garments will benefit the most. However, this benefit will be short lived because eventually either the currency will correct or the foreign importers will ask to pass currency benefit to them.
  2. Employees working in Export Industries may see their employers passing the benefits to them.
  3. If Export industry develops then Trade Deficit reduces.Rainfall - Disadvantage Advantage
  4. Foreign remittance from NRIs may give better value for their foreign exchange when converted to INR.
  5. Foreign travel to India may increase since less USD will buy more for tourists’ money.
  6. Foreign Travel to India will further boost tourism industry, transportation and many small/big vendors.



Negative

  1. Import Oriented Industries such as Crude oil, fertilizer, steel, precious metals, auto etc. will see a decline. These industries will pass on the cost to consumers who will witness the rise in price of their products and services.
  2. Foreign trips and foreign education will get costlier for Indians.
  3. With the fall in INR, foreign investors will lose on their investments in Dollar terms and India may become not so attractive for investment. If that happens then FII may pull money out of Indian Stock Exchange and eventually a large scale growth of Indian Economy may slow down.
  4. Price of Petrol and Diesel will increase. With the rise in price of Diesel, general consumption goods may get costlier, thereby increasing inflation. Increase in inflation will cause price increase for all the products.

Impact You Can Make

  1. Produce exportable products/services. You may refer to our Venture Category for ideas.
  2. Reduce reliance on imported goods and services.
    1. Reduce your vehicle usage and use public transport as far as possible.
    2. Look for alternative source of energy equipments such as solar lamps.
    3. Buy swadeshi – This may sound against Globalization but in current times when Current Account Deficit is high, this may be a buzz word.
    4. I would not advice to not buy gold because I believe buying gold at this time is still advantageous. However, go for Gold ETF.
  3. Improve the quality of products you produce (or may produce) and improve your productivity.
  4. If you have money in foreign accounts then remit that money to India. This will not only give more value for your foreign exchange but also boost your buying capacity and India’s economy.
  5. Postpone your foreign vacation and foreign study if possible.

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