This is the year of the slides.
The government has slid into a black-hole of policy paralysis; the stock market continues its southward journey each day and now to add to the woes of investors, the rupee depreciation has got people worried.
The silver lining is that we should be able to do better going forward. For the end user, the rupee depreciation and its impact is bad news in the offing – his wallet is destined to become more lighter.
Where does the impact of rupee depreciation in India affect most ?
Pay more for grocery
India imports basic raw materials in large quantities. They are crude oil, iron ore, medicines, fertilizers to name a few. These items are indirectly used by investors in items of daily consumption.
For example, take crude oil. It is used in transporting goods across the country. Since the depreciating rupee means an increased cost for fuel, transporting the goods across the country will now result into an increased cost. That will be passed on as increased costs on the goods being transported which could easily be items of daily consumption for you and me.
Fuel is also an ingredient of items like soaps, detergents, shampoos which will become very expensive. Your monthly grocery bill will inflate and I don’t think we have a choice here to bring down the bill.
But how does a falling rupee increase the costs of these items – see the maths below.
- Let’s say Rs 47 = $1 .
- If the value of the rupee falls until Rs 50 = $1, it means the rupee has weakened and the dollar has strengthened.
- If the value of the rupee rises and Rs 45 = $1, then the rupee has strengthened and the dollar has weakened.
- Now, if the rupee value is Rs 47 = $1, and a person wants to covert $1000 into rupees, it will be Rs 47,000.
- If the rupee strengthens to Rs 45, it will be less (Rs 45,000) when converting.
- If the rupee weakens to Rs 50, it will be more (Rs 50,000) when converting.
- The cost of imported materials will increase with a falling rupee.
As you can see, the weakening of the rupee is resulting in more cost to the government which then passes on the higher cost to end consumers.
Pay more for entertaining yourself
Most of the things that we use in daily life for entertainment have a foreign body in it. The presence of imported material in such entertainment units will increase the cost of the items themselves.
Electronic consumer goods like LCDs, televisions, laptops, desktops, notebooks, mobile phones will now become costlier.
The same is the case with food chain outlets whose bottom margins will get impacted because of an depreciating rupee and they may pass on the cost to consumers to keep their bottom line intact. Going to MacDonalds and Pizza Hut might be a bit costlier.
While the cost at these outlets might not go up all of a sudden, check out the increased costs before gnawing your mouth into a burger. And if you wanted to buy consumer durables for your home, try and stick to the desi brands.
Foreign education will sky rocket
Many Indians cross continents to educate themselves in the best of the colleges in the USA. That cost will now be higher than what it was earlier.
The college tuitions fees, the rent of the room, the cost of a basic meal – everything will cost more now.
A meal which used to cost 5$ (Rs 5*45 = 225 Rs) will now cost more (Rs 5*53= 265 Rs). And we haven’t even begun to adjust these prices for inflation ! If you do that, you could break your back.
Many students take education loans here in India to fund their foreign education. With the above mathematics in mind, that loan amount will now increase. For example, if the cost of education was 50,000$ and you were taking a education loan for it, then the loan amount would have been 50,000 * 45 = Rs 22,50,000. But now with the rupee falling to Rs 53 approx, it will be 50,000 * 53 = Rs 26,50,000. That will surely hurt.
I don’t think students can push out their foreign education plans so the alternative here is to increase your down-payment for the loan amount and get more money for the daily living costs in the foreign campus.
Foreign vacations will cost more
The falling rupee is bad news for those frequent fliers who like to spend their vacation out of the country where dollars rule the roost.
The air fares are going to go up and so will the shopping bill. That stay at foreign locations will also be costlier.
To make amends here, try those destinations which don’t have much to do with the dollar – Asia still boasts of places that are out of this world.
Of course, you could cancel your holiday plans altogether but there isn’t a better time than summer when the kids have school holidays. So you might end up taking that flight to a dollar destination and be poorer by lakhs of rupees.
Any sector that is dependent on imported material will see an increase in its operating costs. They in turn will take counter measures to keep their profits in line with guidance provided for the next quarter/year. A company could go in to look lean and mean – this could result in retrenchments of staff with the expectation that less staff can handle more work.
Salary increments could also be frozen for existing employees. For those companies that export work to the US, like the IT companies, it is a rosy period.
If you were to planning to buy an automobile, just hang on till the tide turns. Cars have imported components in them and their prices will increase. In fact, quite a few of them have already done so in the first 5 months of this year. It might be prudent to wait for the prices to stabilize before taking a decision.
Do you think we will see light at the end of the tunnel pretty quick ? Are you impacted and what are your thoughts ? Take a quick poll.