A Report by Prateek Jaju

Rupee Fall/Depreciation & Rise against Dollar: How does this affects you?

Falling Rupee

"We invented money and we use it, yet we cannot understand its laws or control its actions. It has a life of its own."- Lionel Trilling, American literary critic

Rupee showed the biggest fall this year, when the value of rupee came down to 68 rupees per dollar. This is first time, when the currency has fallen down to such a low level.

We have seen such a time also, when rupee was appreciating like anything. It was in 2008, when rupee appreciated drastically and reached around 40 per dollar.

Demand and supply of currency regulates its fluctuation. Today, everyone is talking about depreciating rupee in a kind of worried way. Let's try to understand the impact of falling rupee in a wider perspective.

There are both pros and cons of falling currency. Among all the adverse effects, it has one positive impact on exporters. But at the same time, we cannot rule out the fact that India basically relies more on import than export. Falling currency will make import expensive, which might create a lot of problems in the coming future. Expensive import will gradually lead to hike in country’s balance of payment deficit.

Why Rupee is falling against US Dollar?

• Foreign Institutional Investors

• RBI’s Inflation

• GDP has fallen

• Payment of imports and loans

Impact

↑Imports

↑Depreciation In Rupee

↑Inflation

↑Interest Rates

↓Fixed Income

↓ Growth

↓Jobs

Importers Sells Rupees & Buy Dollars

There Is No One To Buy Rupee How Will It Appreciate?

High Purchase Of Dollars → more Depreciation In Rupee

Depreciating rupee will have an adverse effect on import because now import companies are supposed to pay higher prices for importing the goods or services.

Let’s understand this concept through a simple example – At present, when $1 is equivalent to 60 plus rupees, which means, importers will need to spend 60+ rupees for buying one dollar and the time, when $1 was equivalent to 45 rupees, importers were supposed to buy the same dollar in 45 rupees. Importers have to make the payment in terms of dollars for importing any good or service, which makes import an expensive affair.

Impact on Importers

Depreciating rupee will adversely affect job market as well. Companies dealing in various sectors like manufacturing, power, oil and gas, automotive sectors, electronics, telecommunications might slow down their hiring process to cope up with the high import prices of equipment and machineries. There is anticipation that employees will not see any hike in their salaries.

Impact on Hiring

Depreciating money will show its adverse effect on sales also. Prices of mid-range and low-range mobiles are expected to rise because of their major parts being imported. Supply of mobiles in India is greater than demand; mobile companies will suffer under such circumstances. On the contrary, handset manufacturers of India can earn a lot of profit by exporting mobile parts to developed countries.

Impact on Sales

At such a time, when all the other industries are going to badly suffer due to the fall in rupee, IT industries will earn profit with falling rupee. India-based IT and ITeS companies are expected to earn a huge margin if currency remains depreciated for a long time. But it is yet to be seen, for how long this process continues.

Impact on IT Industry

Export oriented companies such as software companies, textile companies; tourism companies will earn huge margins by exporting their good and services to overseas clients. Depreciating currency will provide the best opportunity to export driven companies as they can earn a huge profit for themselves during this period.

Impact on Exports

Solution?

To balance demand & supply

Proper implementation of monetary policy and fiscal policy in our

country

Stability in imports & exports,etc.