Knocksense Explains| Know how the value of Indian Rupee impacts the common man

Hey, are you planning a trip abroad or planning to buy a new vehicle? Well, if you are, then make sure to check the value of the rupee against the dollar beforehand. Cuz, a minor fall of Indian Rupee could put you in a major loss.

As we all know, the Indian currency has been on a roll against the dollar for quite some time now, reportedly breaching the symbolical level of the 80 mark. This downward spiral of the Indian Rupee is a result of increasing demand for dollars globally, which itself is the result of rising crude oil prices.

Well, it simply depends upon the demand and supply graph. So, if there is a higher demand for the US Dollar, the value of the Indian rupee depreciates and vice-versa.

Unclamping the reasons behind the fall in the rupee will require us to understand some basic dynamics of the Rupee and its relation to the global market. There are three major reasons leading to the Rupee's fall these days, high crude oil prices, a strong Dollar overseas, and foreign capital outflows.

Higher crude oil prices:

They are a result of the Geopolitical crises, Economical crises and political crises of oil exporting countries or regions. With the rise in crude oil prices, the purchasing power of a country like India decreases, leading to higher payout in form of the US Dollar.

A strong Dollar

This clearly states that the global demand for Dollars is high, creating a higher price disparity for India.

Heavy foreign fund outflows from the domestic markets

This resembles the withdrawal of funds by Foreign Institutional Investors (FIIs), Foreign Portfolio Investors (FPIs) and more. FIIs' withdrawal of funds from the Indian market this year has been recorded to be higher than $28 billion which is higher than the $11.8-billion sell-off during the Global Financial Crisis of 2008. FPIs on the other hand, have pulled out ₹2.32 trillion in the last six months.

The more money flows out of India, the more the rupee-dollar exchange rate gets impacted, resulting in rupee depreciation. The depreciation of the rupee puts considerable pressure on the already high import prices of crude and raw materials, paving way for higher imported inflation and production costs besides higher retail inflation.

The Import dilemma

The primary impact of a falling Rupee value affects the import sectors, as the importers have to spend more for the same quantity.

Import of electronic items, such as mobile phones, vehicle raw materials and other appliances are also likely to become more expensive as the production entity will have to pay more Dollar per Rupee.

The inevitably CRUDE oil

India imports over 85% of oil, making it one of the most adversely affected sectors. The higher prices of oil will, in turn, percolate down to a host of products like buying and maintaining cars, logistics, factory produce and anything that requires oil to run.

• At the micro level, things like vegetables, restaurant services, electronic items like mobile phones, televisions, ACs and more will get expensive as the price of fuel rises.

• Every aspect of the common man's routine depends upon the above-mentioned needs, the rise in fuel price affects their production, logistics and export, creating an ever-lasting dent in people's earnings.

• Fuel cost is directly proportional to flight rate. Though the fluctuality of flight rates also depends upon footfall and other factors which are likely to impact the flight rates.

Studying abroad, not so sturdy now

• For students who wish to go abroad to study, a sudden depreciation of the Rupee could impact students. A drop in the Rupee means the student will have to shell out more money.

• So if one spent ₹71 per dollar in 2021, you will now have to spend ₹80, which is a significant increase, affecting over 2 lac Indian students in the US.

The hidden flaw in your itinerary

• The volatility in the tourism industry is connected to several aspects including the rise in fuel prices. This will not only impact your travel cost but will affect your living cost at any holiday destination. Due to The rise in fuel prices, you will have to pay more for your commute, your stay in hotels and more.

• Additionally, people wanting to resume their abroad travel will end-up spending much higher than they would have a few days ago, due to higher exchange rates and less Rupee value.

Inflow directly proportional to Outflow

• As we discussed above, the fall in Rupee value will affect the FPIs and FIIs. Additionally, it will also impact the money received by Indians in form of remittances.

• A large chunk of India's foreign investment includes remittances, i.e., the money received by Indian families by their family members living abroad. With the value of the Indian Rupee falling, the return from remittances will also be impacted.

Impact on Logistics

Logistics is one sector that is considered to be the backbone of the entire market. At every level from getting your product delivered via courier to using packer and movers while shifting, the expensive logistics are gonna impact all.

It's a double whammy for the common man, as they have to deal with the higher prices of goods & services and at the same time recuperate from the clutches of short-term inflation.