The falling rupee isn’t bad news for everyone

  • The rupee hit a new record low today, falling even further to ₹ 71.
  • While this bad news for local businesses and inflation in the economy, it may not be not bad for others.
  • Exports, tourism and remittances may actually gain from this development.
Teetering between the US sanctions on Iran and its own energy demand, the falling value of the rupee isn’t helping India’s economic situation. It hit a new low of ₹ 71 earlier today spelling bad news for local businesses.

That being said, it may not be the worst news for everyone. Remittances, in particular, can greatly benefit from the dip in the rupee. Essentially, the value of money transfers from non-resident Indians (NRIs) employed outside the country will convert to more rupees than before. According to the World Bank, India is the highest recipient of remittances worldwide.

And while one could say that exports would also benefit, most trade houses import as well as export, which should balance their accounts out. While they’ll be making an extra profit on selling goods to foreign countries, they would also be making a loss on the commodities that they’re buying, since they will now be more expensive.

But, since it does make exports look more attractive, the falling rupee is an impetus for ‘Make in India’. One of the reasons that the scheme hasn’t quite attracted an incredible amount of Foreign Direct Investment (FDI) is the strong value of the rupee. This is despite India still being the preferred location for incoming investments, according to the country’s central bank, the Reserve Bank of India (RBI).

Sectors that are primarily going to gain from exports being more lucrative are information technology (IT) and pharmaceuticals that have been adversely affected by the protectionist policies in key markets like the US and the UK.

In addition, the falling rupee could also be good news for the world’s seventh largest tourism economy as well. It contributes to nearly 10% of India’s gross domestic product (GDP) and ranks second globally in terms of employment generation. However, visitor exports and money spent by foreign travellers only accounts for 12% of the revenue generated from tourism.

All said and done, the RBI has speculated that the country will have to be on-guard against inflation risks due its vulnerability to volatility in the financial markets. More than distort the economy, it has greater implications for India with a large amount of its population working in the informal sector. Rather than store their money in banks, they keep it in cash, which loses value day-on-day with the rupee falling.
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