[Explained] What is the impact of a falling rupee on finances in terms of household spending and foreign equity investment
When the rupee weakens against the US dollar, you have to shell out more rupees to buy dollar-linked goods and services. In other words, the dollar becomes expensive for the Indians. This would result in increased expenditure of rupees to purchase imported goods and services.
What does this mean for an ordinary man?
The decline of the Indian rupee against the US dollar may appear to be just a macroeconomic problem. If you dig a little deeper, you would realize that it affects every Indian in several ways. Let’s understand the likely consequences of a weak rupee on your wallet.
Higher household expenses
Fuel prices – diesel, gasoline and cooking gas – which are already high, will rise further as India relies heavily on crude oil imports. With the increase in transport costs, there will be an indirect impact on the household items you consume on a daily basis. Their costs will increase because the costs of production and transport related to oil will increase. Electronics should also be expensive. Devices such as cell phones, laptops, televisions, and solar panels, among other household appliances, will cost you more because several components of these devices are imported.
With the decreasing value of the rupee, education in foreign countries will become more expensive. Students studying abroad or considering graduate school should pay in dollars. With a higher exchange rate, they would have to shell out more rupees to buy the same dollars. This may require a review of their budgets. If you opt for an education loan, your loan will increase in rupees, as will your monthly equivalent installments (EMI).
If you plan to travel abroad this summer, it would be a more expensive affair this time around and it could exceed your planned budget. For example, if you intended to spend $10,000 when the Indian rupee was at 75 against the US dollar, you would have to pay Rs 7.5 lakh. But now, with the rupee losing its value at 78, you will have to spend Rs 30,000 more to have the same amount of dollars in your pocket.
The value of remittances that Indians receive from abroad will increase. This means that families whose relatives send money from abroad will receive more money in rupees.
Investments in foreign equities
If you have your existing investments in US stocks, you will benefit from the decline in the value of the Indian Rupee. For example, if you have 100 shares of company “A” bought at $10 when the rupee to dollar exchange rate was 70. This means that you have invested Rs 700 in each share and your total investment cost in Indian Rupee is Rs 70,000 ($1000). Suppose the stock price is now $15. Your total value in US dollars is $1,500. At the Rupee term, assuming the exchange rate is still at 70, the total investment value would be Rs 1,05,000. However, as the exchange rate is currently 77, you will get an additional Rs 1.15,500 – Rs 10,500. However, if you are considering new investments in US stocks at present, your cost to value will be higher in rupees.
(Disclaimer: The opinions expressed in this column are those of the author. The facts and opinions expressed here do not reflect the views of www.timesnownews.com.)