Rupee meltdown: How it will impact you

Let’s have a look at how continuous depreciation of the Indian currency will affect the common man.

Updated: Aug 29, 2013, 10:19 AM IST

Ajeet Kumar/Reema Sharma

New Delhi: Moving from bad to worse, the Indian rupee hit new historic low of 68.85 against the US dollar in intra-day trade Wednesday on persistent capital outflows and continued demand of US currency from importers and banks.

To restrict the outflow of foreign currency, RBI had, however, announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians.

Strong demand of US currency from importers and banks, continuous capital outflows, widening current account deficit and dollar's strength against other currencies overseas amid expectation that the Federal Reserve will soon taper its bond-buying programme has put pressure on the rupee.

Whether the currency would find its stable level or will continue to slide further remains a tricky question. But till the currency settles itself, let’s have a look at how continuous depreciation of the Indian currency will affect the common man.

Importers/Exporters Importers will strongly feel the pinch of falling rupee as they will be forced to pay more rupees on importing products. Conversely, a feeble rupee will bring delight to the exporters as goods exported abroad will fetch dollars which in return will translate into more rupees. Also, a weak rupee will make Indian produce more competitive in global markets which will be fruitful for India's exports.

Imported goods: Buying imported stuff will become a very costly affair. You will have to shell out extra on imported goods. For instance if you bought a product valued USD 1, you paid around Rs 54 (months ago) but you will now have to shell out close to Rs 68 for the same product.

Fuel price: A weak rupee will increase the burden of Oil Marketing Companies (OMCs) and this will surely be passed on to the consumers as the companies are allowed to do so following deregulation of petrol and partial deregulation of diesel. If the OMCs increase fuel prices, there will be a substantial increase in overall cost of transportation which will stoke up inflation.

RBI’s monetary policy: If the depreciation in rupee continues, it will further increase inflation. In such a situation RBI will have very less room to cut policy rates. No cut in policy rate will add to the borrower’s woes who are eagerly waiting to get rid of the high loan regime.

Students studying abroad: Students who are studying abroad will bear the brunt most owing to depreciating rupee. Expenses incurred towards the university/college fee as well as that of living will shoot up, thereby spelling a huge burden on the students.

Tourism: The depreciating rupee will surely be a dampener if you are planning your holiday abroad. Your travel charges as well as hotel charges will escalate drastically, let alone shopping and other miscellaneous spending activity.

Overseas Indians: Money saved is money earned. Depreciation of rupee is certainly a good news for the overseas Indians. Those working abroad can gain more on remitting money to their homeland.

Country’s fiscal health: A frail rupee will add fuel to the rising import bill of the country and thereby increasing its current account deficit (CAD). A widening CAD is bound to pose a threat to the growth of overall economy.