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Last updated: 09 Oct, 2018  

Rupee.9.Thmb.jpg Rupee fall: What awaits us

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Bikky Khosla | 09 Sep, 2018

For the first time ever, the Indian Rupee closed at a record low of 74.06 against the greenback on Monday. Some experts are of the view that outflow of foreign funds from the equity segment and global market volatility may further pull the currency to the 75-mark in the coming days. Beyond doubt, this situation poses a big challenge to the economy, but it is difficult to believe that an economic crisis is brewing for India. We are not in such a dangerous situation yet.

But neither we are in a comfortable situation. A lot will depend on how the falling Rupee and fuel prices affect our current account deficit in the coming days. It will also depend on how they impact our inflation numbers, spending behavior of consumers and industry reaction to these factors. If the Rupee continues to fall further and FIIs continue rushing out of the country, the situation will worsen further. Additionally, the Centre will have to manage its expenditure tactfully.

Meanwhile, the last week saw two important policy decisions. First, the Centre cut petrol and diesel prices by Rs 2.50 per litre -- a decision which will result in a revenue loss of Rs 10,500 crore in six months, but the Finance Minister claimed that "comfortable" revenue position had created room for the duty cut. In another major development, the RBI last week held its key lending rates unchanged, instead of raising the repo rate despite the falling Rupee and rising fuel prices. It will be interesting to see how these policy decisions affect the economy in the coming days.

How Rupee depreciation is affecting our exporters? It will obviously help them to some extent, but the weak Rupee is increasing cost of imported capital goods and services used by exporters, particularly the freight charges. Additionally, buyers are asking them to reduce the prices. Also, their liquidity condition is being affected as banks are asking to reduce their exposure to foreign currency component of export credit. So, all is not good for exports with the falling Rupee.

I invite your opinions.

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