Fintotal News Analysis | The Noise about Rupee Depreciation. A Simplified Version
The Noise about Rupee Depreciation. A Simplified Version
Kripananda Chidambaram, 17 Jun 2013

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. Now 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 in to rupees today, then I will get around Rs 58.

So you may ask what's the big deal in it? Why there is 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 $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 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

  • Importer. 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 $1,00,000 form USA. He has to pay Rs 58 lacs to get $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.

Those who don't belong to either

Now, you may wonder if I do not belong to either of the above category and am common man, is this event a bother for 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.

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