SHARETIPSINFO >>Research Reports >>Rising dollar and its impact on Indian economy>> (24-06-2013)


All eyes are on the rupee which has fallen in value against the US dollar. It has racked up macroeconomic issues concerning the slow economic growth, corporate earnings and market volatility. It is the common man who is going to hit the most.The falling rupee and the rising dollar can be translated into more expensive foreign holidays, educations or products.

The dollar price rise can be attributed to the deficit in the trade. It means that Indian imports exceed its import. The outflow of dollars can also be attributed to selling of Indian stocks by foreign investors. The resulting outflow of dollar has increased its price against the Indian rupee. The rupee has weakened against the dollar which means you spend more rupees to get that dollar. Large Indian imports like crude oil, fertilisers, medicines and iron ore have become costlier. The rising petrol and diesel prices have affected transportation charges. So, as a consumer get prepared for higher grocery bills.

The Fast Moving Consumer Goods like soaps and shampoos require imported raw material. The cost pressure on companies will lead them to revise the prices of their products. The prices of pulses and oil which are largely imported are going to see a rise in prices. “Crude palm oil prices set the pace for prices of other edible oils. It is imported in large quantities and any rise in its prices will add to the inflationary pressure,” warns Arvind Chari, fund manager, fixed income, Quantum Asset Management.
Students heading abroad should get prepared to shell out more for their education and living expenses. Students taking loans for their overseas education too will be affected. They get their loan in Indian rupees but have to pay in foreign currency. “They may also fall short in funds as the loan would have been taken according to their initial requirements. In such a scenario, either the student’s personal contribution will have to be increase or he will have to ask the bank to increase the loan amount,” says Ashutosh Khajuria, President, Treasury, Federal Bank.

Be prepared for shrinking pay packages. Industries that depend on imported raw material will cut costs either by reducing salaries or human resources.
This, however, does not apply for jobs that are paid in dollars. Vacationers are going to feel the heat of the rising dollar. The airfares, stay, shopping and food will be more expensive. However, those who got their holiday packages before the depreciation of the rupee are safe for the moment. A little fore thought may help travellers like selecting short haul destinations or heading for a non dollar country.The hotel industry especially the luxury section will benefit. They get their revenue in foreign currency.

Car companies are already revising their prices as they are dependent on imported raw material, pay royalties to their parent firms and have loans and borrowings in foreign currency. Consumers of imported paperbacks and gizmos should gear up to pay more. Marketing companies will try and absorb the increase in cost but there may be cases when the consumer may have to bear the brunt.

International food chains spend on imported kitchen equipment and some amount of raw material. Eating in these outlets will see a significant rise in expenditure.
If you are a Non Resident Indian this is the time to either invest in India or repatriate money home.  The Reserve Bank of India has also made things attractive by deregulating interest rates on NRI deposits. NRIs can invest in Indian bank deposits and expect a return of 7% post tax. For a NRI paying EMIs for a home loan in India, this is the time of triumph. The NRI will pay fewer amounts in dollars as part of the EMIs. However, NRIs who decide to repatriate their rupee investments in the country they live in, will find they have lost out. NRIs should remain invested in India while the rupee remains weak.

The weakening rupee has seen a boost in demand overseas of spices and commodities. Accordingly, there has been a spurt in prices of guar gum and guar gum seeds. Even pepper has seen a boost in overseas demand.

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