Similarly, with the rupee sliding to a lifetime low against the dollar, students studying overseas, especially in US universities, and individuals planning to travel abroad will be affected. On the other hand, non-resident Indians (NRIs) and foreign tourists on vacation in India will benefit from the depreciating currency.
Also, India’s widening trade deficit due to rising import costs and stagnant exports would impact the balance of payments and weakened the economy due to weakening of rupee.
Why Indian rupee is falling against US dollar?
According to analysts, the slump is largely attributed to several key global factors. Fresh US sanctions on Russian oil have led to a sharp rise in crude oil prices, which adds to the strain on India’s import-dependent economy. Higher oil prices not only increase India’s import bill but also contribute to inflationary pressures, further weighing on the rupee. The combination of a stronger dollar, rising bond yields, and escalating oil prices has placed significant pressure on the Indian rupee, creating uncertainty in the forex market.
Impact on export
For Indian exporters, a falling rupee means higher earnings when they convert foreign income or export revenue into rupees. Also, weakening rupee boosts export competitiveness by making Indian goods cheaper in global markets. It also enables Indian exporters to offer discounts in an intensely-competitive global marketplace. Given the favourable geopolitical dynamics, a weaker rupee will help bring in export-promoting FDI when countries want to cut their China exposure. Also, an undervalued rupee will also strengthen India’s relative attractiveness as a sourcing hub. On the other hand, it would offer limited benefits to the domestic exporters, when their import content is high. For example, many exporters are dependent on imported raw materials for making finished goods. The depreciation of the rupee leads to an increase in the cost of raw materials, components, and other inputs that are denominated in dollars especially when they are imported.
Impact on import
The declining Indian rupee would make imports costlier. For example, importers need to shell out more Indian rupee to purchase US dollars to pay for imported items and with the decline in the rupee’s value, thus importing will become costlier. Indian imports include crude oil, coal, plastic material, chemicals, electronic goods, vegetable oil, fertiliser, machinery, precious and semi-precious stones, and iron and steel. An increase in importing prices of crude oil would have cascading impact on other sectors such as transportation, manufacturing, and thus consumption.
Foreign education to become costlier
The weakening rupee against US dollar could make foreign education more expensive. Students now need to pay more rupees for every dollar charged by foreign institutions as fees. So, the cost of tuition, living expenses and other fees denominated in dollar will go up. Students who have taken bank loans to fund their foreign education will also feel the pinch more as the rupee amount required to pay in dollars will increase.
Will impact travelling abroad
For travellers, who are planning to travel abroad will have to shell out more money. For example, if they travel, shops abroad or make purchases, or book a hotel abroad, the cost of goods and services will increase as the exchange rate rises. Some credit card companies also charge foreign transaction fees on international purchases.
Impact on remittances
Fluctuations in exchange rates significantly impact the amount of remittance one receives. For non-resident Indians, a falling rupee means higher earnings when they convert foreign currency. So, non-resident Indians (NRIs) who send money back home will end up sending more in the rupee value because of the weakening of Indian rupee.
