How a weak rupee could affect you

The country’s fiscal maths looks strained, but what does it mean for the common man?

The Indian rupee is back in the news as it hit its all-time low of 69.09 against the US dollar last month. The country’s import bill is surging because of this weak rupee; inflation is expected to rise and India’s fiscal maths looks strained.

Even so, what does it mean for the common man and how will it impact him? Here, we take a look at who wins and loses from a weak rupee. That is, we get into what gets costlier, and if the weak rupee presents an attractive scenario for a certain set of investors.

Pinching the purse

Students looking to study abroad and people going on overseas tours would find that they would need to fork out a lot more money that they had planned for, due to the depreciation of the rupee against the dollar. Cost of overseas education and travel will be high as the rupee has depreciated.

Students planning to study abroad this year and those who have already taken an education loan last year and are in the midst of their course will have to shell out more. This is because education loans are given in India rupees and are pegged to the rate of the dollar prevailing at the time of sanction.

The loan for students in the middle of their course would have been sanctioned at a much cheaper exchange rate. For instance, let us say you had taken a loan of ₹32 lakh last year when the exchange rate of rupee against the US dollar was around 64, to meet your two-year education expense of $50,000.

Let us assume that you have used ₹16 lakh from your loan for the first year of study and covered $25,000, half the cost of your course. Now, at the current exchange rate of 69, the balance ₹16 lakh from your loan will not be sufficient to pay the balance course fee.

The ₹16 lakh will earn you only $23,188. The balance $1,812 (equivalent to ₹1.25 lakh) will have to be paid from your savings or by taking additional loan.

However, the weak rupee can help at the loan repayment stage. An individual who gets a job abroad after studies can benefit from the currency exchange rate. The foreign currency earned will fetch her more rupees and help in repaying the loan faster.

Planning an overseas vacation now will be costlier. Since fuel prices are rising, air tickets and accommodation would be a lot more expensive. Also, you may have to cut down on your personal expenses abroad since a weak rupee will get you less foreign currency.

Costlier gadgets and cars

Electronic goods such as laptops, circuit boards and other parts used for manufacturing mobile phones, computers, etc, are all imported by our country. A weak rupee will increase the input cost for electronic goods manufacturers.

Though the producers may absorb the increase in cost to some extent, a prolonged weakness in the rupee will result in costs being passed on to customers. So, there is a strong likelihood of seeing a price increase in mobile phones, digital cameras, laptops, etc, if the rupee continues to fall. The same is the case with car manufacturers that imports auto components. Car variants from Maruti, Toyota, Hyundai, etc, may become costlier.

In general, a weak rupee at a time when the crude-oil prices are also increasing, is inflationary. Increase in fuel costs on the back of high crude prices may increase the cost of almost all items including groceries, food, and can impact your budget.

Finally, this is not the correct time for those who plan to vacate the country and settle/retire in foreign countries. Though the assets they sell may earn a good profit, the foreign currency earned out of it would be lesser because of the weak rupee.

Winners

The sole gainers from the rupee weakness are Non-Resident Indians (NRIs) earning abroad in foreign currencies. The money they transfer to their families in India will now earn more rupees. If an NRI transfers $1,000 every month to his family in India, the family will now receive about ₹68,000 compared with ₹63,000 in January this year when the exchange rate against the US dollar was around 63. The additional amount available is likely to be channelised into domestic real estate, equity markets, gold and other asset classes.

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