The impact of the falling Indian Rupee (INR) extends beyond international trade. It affects various aspects of your life. Whether you’re dreaming of studying abroad, planning international vacations, or looking to secure your savings, the depreciation of INR can bring new challenges.
Let’s understand the 10 main effects of the falling INR and some ways to manage it.
INR Falling Effect
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1. Additional Costs for Foreign Education and Travel
The most obvious impact of INR depreciation is on foreign travel and education. For Example, if 1 USD was ₹60 in 2014 and now it’s ₹84, that’s a 40% increase in cost. So, if studying abroad used to cost ₹1 crore, it would now cost ₹1.4 crores.
2. Exit of Foreign Investors
Currency depreciation can result in losses for foreign investors. If an investor invests $1 billion at ₹84 per dollar and INR falls to ₹100 in 10 years, the investor will get lower returns. This is why Foreign Institutional Investors (FIIs) are withdrawing money from the Indian market.
3. Expensive Imports
India is a net importer, and a falling INR makes imported goods more expensive. Products like petroleum, electronics, and pharmaceuticals become costlier, leading to inflation.
4. Increase in Production Costs
Many raw materials and technology needed for production are imported. A falling INR increases production costs, affecting the competitiveness of Indian products.
5. No Increase in Wages
Despite currency depreciation, wages in India do not increase proportionately. Due to supply-demand imbalances and cheap labor, the income of Indian workers remains stable.
6. Erase of Savings and Investments
If INR depreciates by 5% every year, the purchasing power of your savings decreases. For example, the real value of ₹50 lakh savings will reduce year after year.
7. No Significant Increase in Exports
Usually, currency depreciation boosts exports as Indian products become cheaper in foreign markets. However, due to the lack of quality and competitiveness in Indian exports, this benefit is not visible.
8. Impact on Government Spending Capacity
Currency depreciation affects the government’s forex reserves and purchasing power. As a result, the government may increase taxes to cover the deficit.
9. Rise in Real Estate Prices
Due to the falling INR, real estate prices in India are rising rapidly. While these properties become cheaper for foreign investors and NRIs, they become expensive for Indian buyers.
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It is not just the poor GDP growth or high inflation. Rupee is plumbing record lows every day, that too while the RBI is draining its forex reserves to stall the fall. pic.twitter.com/kyHaGTgeBu
— Sushant Singh (@SushantSin) November 30, 2024
Why is the Indian Rupee Falling vs USD?
The Indian Rupee (INR) has been slipping in value as we approach the end of 2024, and several key reasons are behind this trend:
- Strong US Dollar: The US Dollar has been getting stronger, making it tougher for countries like India to buy dollars. Imagine the Dollar Index, which tracks the USD against other currencies, has gone up by about 4.8%. This means more rupees are needed to buy the same amount of dollars.
- Geopolitical Tensions: There’s a lot of global uncertainty, especially with the ongoing tensions in the Middle East and the buzz around the US elections. This kind of instability shakes up the markets and can weaken the rupee.
- Foreign Investors Pulling Out: Many foreign investors have been withdrawing their money from the Indian market. When they do this, they sell off their rupees, which decreases the demand for INR and pushes its value down.
- Rising Crude Oil Prices: India imports a lot of oil, and when crude oil prices go up, it costs more rupees to buy the same amount of oil. This adds to the pressure on the INR.
- Domestic Economic Factors: Some local economic indicators haven’t been very strong, which can dent investor confidence and affect the rupee’s value.
Even these challenges, the INR has been one of the better-performing Asian currencies, thanks to India’s strong economic fundamentals.
Why Value of Indian Rupee is Falling? Reasons, Impacts and Solutions!
Government’s Solution for Increasing Demand for INR
The government has taken steps like the Rupee Trade Settlement to enable international trade in INR. However, it hasn’t seen widespread success yet. Alternatives like the BRICS Currency are also being considered.
USA Doller to Indian Rupee Conversion
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What Can You Do?
- Invest in Hard Assets: Gold, real estate, or Bitcoin.
- Choose High-Growth Assets: Invest in the stock market to balance currency depreciation.
- Explore Foreign Income Options: Earn in USD or use foreign investment platforms like Vested.
Dealing with INR depreciation is not easy. But with the right investment strategy, you can minimize its impact.
Disclaimer: Investing in the stock market is subject to market risks. Please do your research or consult your financial advisor before making any decisions. The information provided in this article aims to educate and inform investors and traders.