NEW DELHI: With every passing day, the value of Indian rupee against benchmark US dollar is hitting fresh lows. On Friday, for the first time ever, it crashed below Rs 74 a dollar mark. It wouldn’t be a surprise if it touches quarter of a century mark in the next two-three days. In the last one year alone, INR has depreciated more than 11 per cent against the US dollar. While global factors such as the ongoing trade war between US-China and US-Turkey, hike in US lending rates and a host of other reasons are attributed to the downslide, the overall impact of it is now being felt on the daily finances of common people.
As last week we discussed the impact of falling currency on students pursuing education abroad and those embarking on a foreign tour, this week we will look into the impact on other segments. Besides the two above-mentioned direct impacts, consequences of a falling rupee is felt on fuel prices too. Around 80 per cent of India’s fuel needs is met through imports and barring Iran, India pays all the oil-producing nations in Dollar. A falling rupee directly impacts India’s oil import bill and given that the market is deregulated, the final impact is borne by the end consumer.
Even after the government’s intervention that led to cut in fuel prices by `5 in many states, the final price is still more than what it used to be a year ago. Besides, there is no surety that the prices will remain at the current level.
Various calculations show that if a person buys 100 litres of petrol a month at Sunday’s oil rate in New Delhi, he would be paying Rs 1,171 more than what he used to pay on January 1, 2018, when petrol price in the national capital was at `69.97 per litre. The public transport during this period has also become costlier too.
The effect of rupee fall on fuel prices does not end here. Rising fuel prices, in turn, increase the cost of transportation of various commodities — from manufactured products to agricultural produces. This may affect the prices of your daily groceries, weaken your purchasing power and postpone your demand.
While last month’s consumer inflation rate showed insignificant rise in the food segment and a deflation in vegetable prices, traders we spoke to said if diesel prices are not checked immediately, there can be a significant price hike on vegetables and fruits in the coming months. “Thanks to the bumper production this year, consumers are getting fruits and vegetables at manageable prices. Otherwise, fuel prices would have surely taken a toll on everyone,” said JK Singh, a trader in Azadpur Mandi.
But unlike these fast-consumed durables, manufactured goods such as computers, televisions, mobile phones and automobiles that have imported components have become significantly expensive in the past few months. If the rupee’s downslide continues, they will become more expensive.
“Rupee’s devaluation is impacting our bottomline in a big way. We will think of increasing prices of our products after the festive season,” said CEO of a leading electronic appliance maker. Similarly, facing dual impact of rupee devaluation and recent hike in customs, mobile phone makers such as Honor and Asus said they will take a call on pricing post Diwali. The currency depreciation has also burdened people with higher interest burden on car and house loans.
RBI was already forced to hike interest rates twice this year, and as a result, consumers are paying a much higher EMI than before. For investors of debt funds, rise in interest rates would bring down bond prices and hence debt funds’ net asset values. However, the central bank, contrary to popular expectations, avoided a third hike recently.
When fund managers were asked what investors should do to hedge the impact of falling rupee, they repeated their belief and said long-term investment in equity markets will not only protect your sum value, but would give a healthy return. They also said investment in gold and good real estate property can also be looked at to balance equity market risk.