Here’s how the rupee’s nose-dive will affect you

If you’ve been reading the news, you’ll know that the Indian rupee hasn’t had an easy go if it as off late. After hitting a 17-month low earlier this year in May, the currency hovered around the below-70 mark (when compared to the US dollar) for the rest of the summer, before breaching the 70-mark for the first time in history on August 14th owing to the effects of the Turkish lira crisis and the widening of India’s trade deficit. This morning, it touched a record low of 70.32, causing panic among investors.

While the rupee is expected to stabilise, the short-term impacts of its free-fall will be felt throughout the economy. Here’s how the depreciation of the currency will affect the average Indian.

A foreign degree and overseas travel will be more expensive

Parents looking to send their children abroad for studies will probably have a rethink. In August 2008, the rupee was around 43 to the dollar. This means that in the span of ten years, the rupee has depreciated by 62% in nominal terms. A foreign degree in 2018 is a lot more expensive than it used to be, and will affect parents and students who have taken out education loans. What’s more, even the cost of overseas holidays has gone up. In most Western countries, the daily cost of food, lodging, transport and shopping for Indian tourists will be a lot more - necessitating a budget reduction.

Smartphones and other imported items will cost more

A number of items that we use everyday like smartphones, computers and cars require components that are imported from abroad. The decline in the rupee will make these imported items more expensive to producers and assemblers in India, who will factor in these costs when setting the price of the final product. Additionally, all finished goods that are imported from abroad, from iPhones to Froot Loops Cereal to Audi sedans, will be more expensive after being converted into rupees.

Fuel prices will go up

Unlike electronic items, as mentioned above, the consumption of certain imports cannot be cut down. The global price of oil is dictated in dollar terms. As India imports 80% of its oil, the price of fuel for Indian consumers will have to rise because oil companies will not be able to bear the burden of higher costs alone. This means that everything from daily transport costs to taxi fares will increase. As a result of the higher fuel costs, a lot of essential items that are transported, like agricultural produce, will be more expensive to transport, leading to higher food prices.

Inbound remittances will increase

All is not bad news, however. Payments sent home to India by NRIs or Indian citizens living abroad will be higher in absolute terms. People will likely rush to take advantage of the rupee’s fall and pricing difference to send more money back home. While low-skilled workers will continue to send the same amount regardless of exchange-rate volatility, it is mostly richer Indians who will send more money back for investment purposes such as real estate purchases. This has a beneficial effect, as higher remittances will increase the country’s foreign reserves.
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