On a prayer

In the past year, as the rupee slipped and slid against the dollar, we’ve heard grim stories of how this has landed the Indian economy in hot waters. Terms such as balance of payment crisis and current account deficit fly about. Apart from the folks at the Reserve Bank of India and the large corporate groups with cross-border trade running into millions of dollars, you and I have some worrying to do too. Here’s why.

The student

Bank loan arranged, accommodation secured, bags packed — Sharan Srinivasan is all set to fly to the US in a couple of months. He has got admission to an MS programme in industrial engineering at the prestigious Stanford University. But the one factor that caught him, and his parents, off-guard is the slipping rupee.

As the Indian currency weakened by 10 per cent against the dollar in barely three months, his apartment rent and other campus expenses have ballooned. “The cost is up by Rs 12 lakh in total. We budgeted for a rupee at 57, but certainly not at 60!” says his mother. A chunk of that increase will go towards the $70,000 bank balance he needs to get a student visa. Sharan plans to take a top-up loan from his bank, hoping to repay it after he lands his first job.

Some students such as Chetan Srinath, from IIT-Madras, are better placed — he has full assistance for his course at the Massachusetts Institute of Technology, and universities abroad only look at the dollar outgo. Uma Maheshwari, headed to a prestigious medical research lab in Texas, and Chinmay Shukla going to Harvard are likewise protected against the rupee’s vagaries.

Not so lucky are the students dependent on remittances from parents for their living expenses. One-tenth of the money sent overseas by Indians in 2012-13 went towards children’s education in foreign universities. With scholarships and other funding running scarce, parents will now have to save more to give their wards a foreign education.

The consumer

The most devastating wallop dealt by a falling currency is on your daily commute bills. Since January 2007, your petrol-driven four- or two-wheeler would have presented you with a fuel bill that’s 42 per cent more. For diesel-driven vehicles the fuel price has climbed 60 per cent in six years.

Each slide in the rupee only serves to push up domestic fuel prices, as the country imports nearly 80 per cent of its crude oil requirement. Long sheltered by government-controlled prices for petrol and diesel, the daily commuter now faces the heat after fuel prices were partially decontrolled over the past year. Retail fuel prices are regularly reviewed and adjusted in tune with the movement of international crude oil prices and the rupee against the dollar.

When bare essentials have not been spared, what hope is there for life’s little luxuries? Do you love to sex up your food with exotic imported food ingredients? Well, be prepared to pay more for this indulgence of the palate. An iPhone upgrade or a new addition to your Swiss watch collection will pinch harder now. Any further fall in the rupee, and it may well be time to curb the fetish for imported cosmetics, shoes, apparel, furniture, home accessories et al, unless you are prepared for a larger hole in your bank balance.

Personal computer makers offering discounts even a few months ago to pep up sales, are now thinking of hiking prices to make up for the 10-12 per cent increase in component costs that is biting into their profit margins.

And there’s little to be said for gold or diamonds. Though global gold prices have fallen by 22 per cent this year, the yellow metal is only 12 per cent cheaper in rupee terms — blame it on the fluctuating forex rate.

The traveller

Travel agents are frowning as Indians hesitate to embark on a foreign vacation on the back of a weak rupee. A recent Business Line story reported a 30 per cent drop in enquiries for overseas travel this year.

A month ago, Aniruddh Raman paid €1,650 to sign up for a four-country Europe tour this month. With the euro at 75 to a rupee, he coughed up nearly Rs 1.25 lakh.

“I wish we had made this trip last year, when the euro was still at 65,” he sighs. Not to mention the extra cash he’ll have to carry for on-road expenses, tips at restaurants and shopping.

However, if it isn’t Paris or another European beauty you’re hankering after, you can still play smart and vacation in countries with currencies that are weaker than the rupee — yes, there are a few of those too. South Africa, for instance. And apna Hindustan is always at the ready. There is certainly no dearth of scenic hills and vales back home.

The investor

A weak rupee is certainly not good news for you as an investor. For one, with much of India Inc heavily dependent on import inputs, corporate profits are likely to take a big hit due to the sliding rupee. And then, companies that have piled up foreign currency debt in better times are in deep trouble too. That can’t augur well for your equity portfolio. The rupee’s random jumps also tend to spook foreign investors, who are the lifeblood of our markets. The only way to shield against all this is by buying international funds — mutual funds that load up on US or other developed market stocks.

But there is one set of people who are actually happy with all this action in the foreign exchange market — those who make quick gains from every blip in the rupee. Forex trading firm employee Shantanu made a neat profit by selling the rupee when the dollar crossed Rs 57 and buying it back when the greenback strengthened to around Rs 60. It is not just our domestic traders, but foreign hedge funds too are making the most of the rupee’s sharp plunge. Forex advisory firms do brisk business even as the importer fraternity wakes up to the devastation the rupee has wreaked on their finances.

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