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| Story of Indian rupee | | | Indian rupee in 1947 is
not the same as we see
today. Its appearance has undergone regular changes. But what it has consistently lost is purchasing power. Consequent to the political and economic conditions, its value has changed.
Today, every one of us continually experiences the heat of rupee losing value. Marketing mantra 'more for less' may be echoing far and wide, but the depreciating value of rupee only tells us a vice versa story, that is 'less for more'.
Basically it's inflationary pressure which has been eating up income levels. Price rise has remained a serious concern for every generation. So under the circumstances, it's not enough to own a rupee, but it makes a sense makes to know the value of rupee which we possess in our wallet. To make rupee worthy for ourselves, we have to understand its consequent fall in the value. The basic theory is that we have been spending more than we have been earning and that is causing stress on our economy and also the currency (rupee).
Let me slideshare story of a dam storing a lot of water. When we add more water to the current stock of water, we can say that liquidity in the dam has increased. The ideal thing would be to release the excess water into the agricultural fields so that it could result in a better output. But for this it's mandatory to have canals which can carry the water to irrigate fields. However, if it doesn't happen and the liquidity is used for domestic purposes, then this adversely affects the crops output.
So, here the water is like money that was released to the economy. The channels are like the policy execution mechanisms that help to deploy capital and the crop produce is like the economic growth that takes place in the economy.
Now since the policies meant to support investments did not get executed on time the stimulus capital could not get deployed as intended and hence the capital formation for the needed economic growth that was expected did not take place. So the channels taking water to the fields were blocked the released water ended up being used for domestic consumption purpose. When there was excess water available, it was used for same work than used earlier.
Thus just like the currency that loses value due to inflation the excess water released into the village too lost value from the farmers' perspective.
Thus in case of the dam, the liquidity in our economic system increased but instead of being deployed by way of investment that would have commensurate economic growth instead got into the system as additional consumption leading to inflation.
As a consequence of additional money in the system without commensurate increase in country's economic growth, the value of rupee has depreciated as we pay more for the same quantity of goods and services.
Meanwhile, the value of rupee is assessed by comparing it with the US dollar. For a common man, the falling rupee is going to hit where it hurts the most-the pocket. It has direct bearing on the cost of living where essentials such as food, education, smart gadgets like computers, laptops, mobile phones etc will see rising prices.
Every time rupee falls, the cost of imports goes up and the commodities like crude oil, fertilisers, medicines etc. become costlier. Impact on crude oil means escalation in the prices of petrol and diesel. Any upward movement in the prices of fuel will increase the cost of transportation of goods. The consumers, whether buying food items or any other item, have to bear this additional cost. The result would be that a common man's budget has to face the brunt of the weakening rupee.
Education expenses of students who have taken loans to fund their foreign degree become expensive. For instance, a student joined a foreign university some time back when a dollar would cost Rs.45 and he would pay $1000 (Rs.45,000) per month. While mid way of his studies, the rupee has fallen to over Rs.63 per dollar and this means he has to pay Rs.63,000 per month against Rs.45,000 when had he sought admission in the university.
Impact on the automobile sector is also a reality. Input costs go up as these companies use imported components. Besides, many have foreign currency loans in the form of external commercial borrowings and foreign currency convertible bonds. To keep their profitability insulated from such situations, the auto companies have no other choice but to pass on the burden to customers.
In short, the falling rupee is making a serious dent on our individual finances as it is putting huge pressure on the already high inflation with essential and other imports getting costlier. So under the circumstances, when rupee is losing value, you need to navigate your finances effectively and efficiently through these rough waters.
(The views are of the author & not the institution he works) |
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