10 Ways The Weak Rupee Affects The Aam Aadmi

10 Ways The Weak Rupee Affects The Aam Aadmi

August 29, 2013

The rupee weakened to 68.82 against the dollar on August 28, 2013, hitting an all-time low. In a discussion in the Parliament on the state of the economy, the Union Finance Minister tried to put up a brave face, as he tried to pass the buck to his predecessor.

However, industry feels that a weak rupee also means expensive oils, fertilisers, iron ore and coal, which India imports in commendable quantities. The government's subsidy burden has risen and it is compelled to hike petrol and diesel prices even as oil marketing companies are reeling under higher import cost.

Usual discussions on the fall in the rupee bring up macro-economic matters such as slowing economic growth, corporate earnings and market volatility. However, the woes aren't restricted to corporate corridors or the Dalal Street. For the common man, the falling rupee is going to hit where it hurts the most-the pocket.

Here is how the weak rupee is going to affect you:

  • With depreciating rupee value, there is no respite for common man from the harsh reality of double-digit inflation and price rise. Pulses and vegetable prices are going through the roof with just last week onions touching Rs 80/kg.

  • As transport cost goes up, the price of food, consumer durables and fast-moving consumer goods will also be hiked in tandem. As India imports over 60 per cent of its edible oil stock, the cost of cooking oil will go up. The prices of the products where vegetable oil is a key ingredient, like soaps and detergents, will be hiked due to higher manufacturing cost.

"The impact of rupee depreciation on the FMCG sector will be due to higher cost of imported raw materials. The companies were already facing cost pressures. The rupee depreciation has added to their woes. They will have to revise prices. Hindustan Uniliver and Procter & Gamble have already taken steps in this direction. Many others will increase prices in the coming months," says Kaustubh Pawaskar, FMCG analyst at Sharekhan told Business Today.

  • Thermal coal which is used for the generation of electricity is India's major import. Due to the depreciating value of rupee, the costs for power generating units gets increased which would lead to high electricity bills for consumers.

  • Students who have taken loans to fund their foreign degree are also bearing the brunt. Education loans are usually in rupees, but as students pay their expenses in a foreign currency, the cost of education and stay has increased. For $100,000, a student had to pay Rs 45 lakh. Now, he has to shell out Rs 52-54 lakh, depending upon the exchange rate.

  • Consumers are the worst hit with cost of gadgets and consumer durables going up. Panasonic and LG have already announced a price hike. It is the same case for mobile manufacturers, who are unable to keep tab on currency fluctuations.

  • International food chains which run outlets in India are not denying the impact on profitability.

"The depreciating rupee has had a significant impact on our capital expenditure as we import a lot of special kitchen equipment. There has been an indirect impact too as a small part of inputs are imported by our suppliers. If the trend continues, we will be forced to pass on some burden to customers," Vikram Bakshi, managing director and JV Partner, McDonald's India (North & East) said.

  • A weak rupee results in tight budget plans which might force hospitality and hotel industry to pass on their burden to consumers by increasing product prices. Hospitality is an important sector for which India is famous, it is necessary to have international standards to attract tourists from all over the world. But the hoteliers are forced into cost cuts due to the depreciating currency value.

  • There is high pressure on automobile manufacturers as many components are imported and they need to shell out more than what they did a year ago. With rupee slide, consumers will be forced to share the burden of automobile companies, which will hike the prices of vehicles.

  • Those manufacturing companies which have taken foreign currency loans are in trouble as their repayment cost has shot up. In order to manage their costs, they might go in for staff layoffs or salary cuts.

  • A falling rupee forces the newspaper sector that largely depends on import for its components and newsprint to tighten its costs by pay cuts.

Gainers from the rupee crisis

The only gainers are the IT companies. A movement of rupee in the exchange rate will have an impact of 40 basis points on the U.S. portion of the revenue of an IT company. Simply put, for 1 per cent fall in the rupee's value, their profit is expected to see a hike of 50 to 110 basis points. One basis point is one hundredth of a percentage point.

Also, the families of NRIs are another set of gainers, since transferring money from abroad to India will give them more rupees as repatriation goes up.

Despite being led by an economist Prime Minister, the state of the economy in India is in shambles. It is opportune that the government took stock of the situation and acted in favour of the nation. And if the government is unable to dispense of its duties to the people, it must seek a fresh mandate, rather than burden people with its deleterious policies.

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Comments (5)
 
Bani Reply
August 29, 2013
My marriage is coming up! Gold prices are skyrocketing! I wish the crisis is resolved soon :-(
Shreya Reply
August 29, 2013
Thanks for such an informative post, elucidating in plain language the tricky details of economics!
Rahul Reply
August 29, 2013
I was planning to take up PhD course in America after completing MSc this year. Might have to rethink now!!!
Hussain Reply
August 28, 2013
India is standing at the brink of another 1991 like disaster. Govt in denial, opposition clueless. Consumers are paying!
asrabul Reply
August 28, 2013
Economist PM leading India towards economic doom!
 
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