As rupee depreciates, here is how it may well hit the economy, hurt the consumer

This will also have a direct impact on consumers too as it is going to increase the prices of petrol, diesel as well as products of everyday use.

The Rupee on Tuesday crashed to a 15-month-low of 67.26 against the US dollar. In fact, since the beginning of the year 2018. Image source: Reuters

Though the depreciating value of rupee against US dollar is good news for exporters, it is a matter of concern for importing companies as this rise is going to increase their bills. This will also have a direct impact on consumers too as it is going to spark an increase in the retail prices of petrol, diesel as well as other products of everyday use. The increase in the price of fuels is in turn going to lead to an increase in transportation costs, which means that it is going to have a direct impact on the kitchen bills of Indian households.

This nightmare scenario has become even stronger as the rupee on Tuesday crashed to a 15-month-low of 67.26 against the US dollar. In fact, since the beginning of the year 2018, the Indian rupee has lost 4.3 per cent of its value against the US dollar and there has been a decline of about 2.5 per cent in the month of April, 2018. As of March, 2017, the rupee has crashed by 3 per cent against the dollar.
With this collapse of the value, the rupee managed to enter in the list of top three worst performing currencies in the emerging market pack in 2018. The list is topped by the Russian ruble, which is followed by Brazilian real. Ruble has crashed by 10.76 per cent since January 2018 and Real has depreciated by 6.94 per cent.

Experts suggest that steady rise of international crude oil prices is the main reason behind this fall of the value of rupee. "The key reason which I see behind fall in rupee's value is that the level of industrialisation which was expected under Make in India, which is not happening. However, the American economy is getting strong with decisions being taken by Trump administration," says Dr Sunil Gupta, an economist. He added, "Our economy is an oil import economy. There is a direct impact on oils prices with the decline in rupees value. When oil becomes costly, especially diesel then consumer goods like vegetables, manufacturing items, which are transported using trucks becomes costlier as transportation cost increases. Not only oil but other goods also such as gems and jewellery, electronic items also witness a rise in their prices".

Dr Gupta also added, "If OMCs like Indian Oil and others absorb the rise then it will have to incur losses. Any loss to these OMCs would lead to fall of their share prices, which means the shareholders will have to face the heat of the losses." There are other consequences too. Overall, if the rupee is not strengthened in the coming time then inflation will go up. Any step taken by the RBI to control the it may lead to increase in interest rates. That will not be good news to those looking to buy their dream homes which means an increase in housing loan EMIs. So, ultimately, the common man or the consumers will have to suffer at the end.

On the other hand, according to economists, the decline of a half to 1 per cent in rupee is justified for a developing economy like India. But the situation will become especially worrisome if the decline reaches 3-4 per cent because the impact then will increase manifold hurting a wide swathe of society.

TAGS:

india