The Indian Rupee is on a fall since August this year, falling from around Rs.45 to a historic low of Rs.52.03...that's a fall of around 15% . The fall started with the escalation of the Eurozone crisis and hasn't skidded to a halt. This has had a drastic impact on the Indian economy ranging from a fall in forex reserves to mounting losses for importers. The worst part is that our's is the worst performing currency in the Asian market. Let us analyze the impact this is and will have on the Indian economy and the 'aam aadmi'.
FOREX WOES
India's forex reserves have fallen the most in the past 3 weeks ever since the Lehman Brother's collapse in 2008. The current reserves as on Nov.18 were $308billion, down from 320 billion on October 21, 2011. Experts attribute atleast $3-4 billion dollar decline in reserves just due to currency interventions.
ELECTRONIC GOODS GET DEARER
Prices of most electronic items ranging from mobile phones to TVs have been increased due to higher costs of importing them. Increases have been in the range of 2-5% varying according to the sector.
DEFICIT TARGET
The Indian Govt. was already finding it tough to meet it's fiscal deficit target of 4.6% and the deficit now looks to widen further as the sharp fall in rupee has made the cost of importing crude oil and fertilizers more expensive. This makes the deficit larger as the entire cost of the jump is not transferred to the consumer but is borne by the Govt. as petroleum related products are subsidized considerably (taxes, et al are another issue) and all oil companies are bleeding.
IT
The IT firms, as most of us would assume, should be a happy lot since they receive their earnings in dollars. However, most of the are not that excited over what they term as 'short-term' gains. A reason for that is because the big players such as TCS, Infosys, Wipro, HCL and Cognizant had funds upto $5billion in hedge funds (range: 45-49), thereby limiting windfall gains. In fact, it is infosys and HCL which will be the main gainers from this as they are hedged lesser.
(The IT companies claim that such volatile conditions may hamper growth...)
OUTBOUND TRAVEL
Outbound travel has also taken a hit as foreign holidays get dearer by more than 30%!!! Decreased outbound travel would mean better signs for our currency but that would be a very micro view of this situation. A better viewpoint would be the angle of increased domestic consumption of travel & leisure. Sales are down by about 7-8 % as reported in some prominent business dailies.
FOREIGN EDUCATION LOANS
Students who are studying abroad or are almost at the end of their courses have a reason to worry. They'll have to shell out more as the rupee has fallen sharply. And this amount won't be insignificant as foreign education loans, on an average, are somewhere between 14-20 lakhs with a tenure of 3-4 years at an interest rate of 13-14 percent. As the local currency slips and this coincides with the end of trimester/semester (payment time), a cheaper rupee means parents will have to shell out more money as the fees is in dollars!
The situation won't be any better, in fact it would be worse, for new students as the amount given by the bank would be more, and hence this amount would be added to the student's pay back amount.
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