Jun 19, 2013, 07.38 PM | Source: Moneycontrol.com
Kripananda Chidambaram of Fintotal Insights and Resources very simply explains the noise revolving around the depreciating rupee and how does it impact the common man.
Kripananda Chidambaram (more)
Director, Fintotal.com | Capital Expertise: Insurance ,Tax ,NRI ,Mutual Funds
If I had one dollar with me 2 years back, and converted them into rupees then I could have got around Rs 45. If I had one dollar last year, I could have got around Rs 55 if I had converted it then. If I had the same dollar 6 months back, it would have fetched me the same Rs 55. But if I have the dollar and convert that into rupees today, then I will get around Rs 58.
Also read: Rupee at 58 to a dollar, what should you do?
So you may ask what the big deal in it is. Why is there so much noise? Why do you call it rupee depreciation?
This event is both positive and negative.
Let us first look at few set of people to whom this brings cheers:
• Exporters: You are exporting goods and services out of India and you receive payments in dollars. Say you send goods worth USD 1,00,000, when you convert it to rupees now it will be worth Rs 58 lacs and six months back it would have been Rs 55 lacs. A gain of Rs 3 lacs for no extra effort
• Companies borrowing money from other countries will benefit big time as they get more rupees for the dollars they bring in
• Similarly, families of non resident Indians (NRIs) remitting money from foreign country to India will get more rupees
• If a foreign company is planning to invest in Indian business, for lesser dollars they will get more value in India
• Foreign travelers coming to India will benefit too as they get more for the bucks
Broadly for those who receive dollars, it is happy time.
The other set for whom the event is a bad news:
• Importers: If you import goods either for manufacturing or selling in India you have to make the payment to the seller in dollars. Suppose an importer buys goods worth USD 1,00,000 form USA. He has to pay Rs 58 lacs to get USD 1,00,000 as compared to Rs 55 lacs 6 months earlier. It’s a loss of Rs 3 lacs
• Indian companies planning to invest in other countries will find it more expensive to do so as compared to earlier
• Overseas travel will become costlier as you need to allocate more rupees to get the same amount of dollars
• Parents who have their children staying abroad will find the pinch too as they need to increase the budget set aside for the purpose
Meaning, any instance of converting rupees to dollars will hurt.
Now, you may wonder if I do not belong to either of the above category and I am a common man. Should this bother me?
Yes, it does affect you even as a simple Indian citizen. India as a country imports many items including crude oil (petrol), agricultural items, raw materials, machinery, arms, edible oil, gold etc.
So all of these items can get affected and prices can go up. Overall, India buys more that what it sells to other countries. So net-net it is negative for the country.
What is causing the depreciation of the value of rupees?
There is no straight answer to this but broadly economic conditions in Europe and internal bad performance of the economy are the cause for dollar appreciation.
Is there anything you can do about it?
Nothing much, except to stop investing heavily in gold, use lesser fuel, postpone foreign travel, buy lesser imported goods, etc. But now is the time to start exporting and conquering all corners of the world.
The author is the Director of Fintotal Insights and Resources