Impact of Historic Fall in Rupee:The Indian rupee fell 58 paise to close at a historic low of 86.62 against the US dollar on Monday, January 13, 2025. This is the biggest decline recorded in almost two years. The main reasons behind this decline were the strong US dollar and the rise in crude oil prices. The dollar has strengthened after the US Federal Reserve indicated that it would slow down the pace of interest rate cuts. Along with this, there has been additional pressure on the rupee due to withdrawal of money from the Indian stock market by foreign investors.
The burden on your pocket may increase
The weakness of the rupee has a direct impact on the pockets of the common man. The prices of imported goods increase. This happens because the cost of imports increases due to the dollar becoming expensive. For example, if importing an item worth $100 cost Rs 8,300 last year, now it will cost more than Rs 8,600 to buy the same product. There are many things in the country including crude oil, drug formulations, which are imported on a large scale, hence their cost may increase. Due to increase in the prices of crude oil, petrol and diesel become expensive and the cost of transportation increases. In this way, due to fall in rupee, there is a danger of increase in prices of all essential commodities i.e. inflation.
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Impact on expenses for study and travel abroad
The weakness of the rupee also affects students studying abroad and those travelling. Due to the dollar becoming expensive, all the expenses including tuition fees and living expenses of foreign institutions increase. People traveling abroad may also have to spend more.
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Increased challenge for import dependent business
For those businesses which are more dependent on imports for their business, fall in rupee means increase in input cost. On one hand, this increases the pressure on profit margin and on the other hand, there is a fear of lagging behind the competition if the price of the product increases. Fluctuations in import costs make it difficult for a business to make long-term planning of costs, pricing and profits.
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Exporters may benefit
Sectors that focus on exports like IT, Pharma, and Gems and Jewelery may also benefit to some extent from the rupee’s weakness, because the payments they receive are in dollars. But this potential benefit depends on where the raw material of their product comes from and if it has to be imported, how much impact the increased cost of imports has on the finished product being exported.
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Impact on domestic stock market
Due to the fall of rupee, there may be a negative impact on the domestic stock market. If there is a possibility of continuous decline in the Indian currency, international investors may withdraw their capital from rupee based assets and turn to dollar based investments. This may increase market instability. Whereas those investing in American stocks can benefit from the strength of the dollar.
What should investors do?
At the time of falling rupee, investors should reconsider their investment strategy. In such times, increasing investment in export oriented sectors like IT and Pharma can be beneficial. Also, it is better to invest in strong companies which can better withstand the fluctuations in foreign exchange. It is also important to focus on long-term investments and adjust financial planning according to changing circumstances.
