Tuesday, June 25, 2013

Rupee Fall – How it Impacts Personal Finance?

‘Rupee’, which has dropped 6.7 percent this quarter, making it Asia’s worst, has been able to escape away from grabbing attention of the common man. While ’Common man’ is busy working day and night to make his life more comfortable, he is far off from the reality. Every single day of rupee fall is making him poorer.
Rupee Fall and Personal Finance
In India, Rupee fall effects are attached to broader macro economic factors like economic slowdown, corporate earnings, and fiscal deficit, but it fails to point out the implications of it in our daily lives. Rupee fall pinches our pocket in many ways than one, from the steep rise in basic necessities like vegetables to a glitzy gadget that you plan to buy. Lets see how it impacts our personal finance.
1)      Grocery bill set to rise – Already troubled by rising prices, expect yourself to be more upset on account of worsening inflation. Rupee depreciation makes all our imports like Crude oil, Fertilizers and Iron-ore dearer. Though we do not buy them directly, we still bear the brunt indirectly through increased prices of by-products.  For instance, a weak rupee will influence petrol and diesel prices. This will add on to the transportation cost of goods, transported from one part to another. Pulses, edible oil, soaps and detergents will see the same fate impacting the household budget.

2)      Setback for Home Loan consumers – Free-falling rupee fizzles out hopes of rate cuts, as high EMIs may continue to be a reality for the coming months too. Home loan Equated Monthly Installments (EMI) form a significant part of fixed expenses, and rate cut expectations can help our personal finance a great deal. However, the sharp plunge in the rupee has changed all equations, as the central bank will now be under pressure to reduce spending and curtail demand of imported goods.

3)      Plummeting investment value – FIIs contribute to most of the stock market activity and so FII inflow is crucial in deciding the direction of the stock market. When rupee depreciates, a foreign institutional investor (FII) invested in Indian equities stands to lose unless the returns are more than the fall in rupee (against the dollar). During the rupee fall, FIIs shy away from Indian markets which will result in under-performing stock market and resultant plunge in our investment values.

4)      Costlier Foreign study - The increase in study cost is directly proportional to the percentage of rupee depreciation. Also, the rising cost of buying US dollar increases the cost Indian students have to shell out for studying abroad. This means that if a meal ($7) which costed around Rs. 378 (Rs.54/$) then, will cost now Rs. 406 (Rs.58/$) and so is the case for all the expenses.

In this case, parents and students find themselves in financial strain and mostly, students are forced to pick up part time jobs or cut their expenses.
5)      Uphill Overseas Vacation - Depreciating rupee will impact the holiday makers and itinerant (travelling) Indians to a foreign country. Expenses ranging from Air fares to stay and meals will increase by 5-7% individually. Apart from this, travel cover, which is denominated in US dollars and is mandatory in some cases may see an upward revision of premium, if the rupee fall trend continues.

6)      Jobs and Remuneration – Rupee fall could also shrink the pay checks. Industries dependent on imports resort to cost reduction measures, one among which is human resources. This balancing act of companies might mean reduced income or attrition.
7)      Car dreams to take hit – Expected hike in car prices can dwindle your dream to buy one in near future. Another product which can be directly impacted by falling rupee is automobiles. The imported cars and the cars whose spare parts are imported from other countries are going to be more costly.
8)      Gadgets and Lifestyle expenses to go up- Tighten up your purse strings as you witness increased prices for weekend entertainment spending, be it eating out pizza or shopping for imported perfumes. Even gadgets like Smartphones and laptops, which are built with imported components get expensive.

In the last couple of years, rupee has plunged around 30 percent against the dollar which translates into 30 percent fall in our purchasing power.  The rupee slump effect is not just limited to corporate corridors but it puts a great pressure on household finances as well. All we can do is to pray that this trend comes to a halt at the earliest.
Source : investmentyogi

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