Why Rupee is falling? How it will affect you?

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Due to falling value of Indian Rupee prices of imported goods have greatly increased.

In August 2022, the Indian rupee fell to Rs 80 against US Dollar. This is the lowest value of Ruppe which fail more than 5% against the US Dollar in the first half of 2022. This fall against the dollar in the forex market means the Indian currency is weakening. Imports to India have become costlier while exports have become cheaper.
One of the major reasons for it is the payment that is accepted in the majority of countries that import to India is USD.
Why Rupee is falling? How it will affect you?
Why Rupee is falling? How it will affect you?
Why Rupee is Falling?
The value of the Indian rupee to the US Dollar is dependent on demand & supply.
If a country’s imports are more than exports, then the demand for the dollar will be higher than the supply, and the domestic currency like the Indian Rupee will depreciate against the dollar.
Moreover, India is mostly dependent on imports of crude oil and other goods. The country makes payments in US dollars, contributing further to the fall of the Indian currency. So, it is pretty much figured out that the rupee’s fall these days is mainly due to high crude oil prices, a strong dollar overseas & foreign capital outflows.
The Rupee has been in constant decline and has been pushed further down after supply chain disruptions occurred as an effect of the Russia-Ukraine war, economic challenges on a global level, crude oil prices & other issues.
All this leads to more money flowing out of India. It impacts the rupee-dollar exchange rate, depreciating the rupee. Such depreciation is putting considerable pressure on the already high import prices of crude & raw materials. It is boosting inflation on imported items (where you are ready to pay more for a commodity) & production costs along with higher retail inflation.
Impact on the Indian Economy
India imports 20-21% of its GDP. It includes goods such as mineral fuels, oils, electrical & mechanical machines, nuclear reactors, jewellery & other types of goods. Almost all of these imports are conducted in dollars which leads to the weakening of the Indian currency.
Impact on the Indian Economy
Impact on the Indian Economy
Impact on Sectors:
Oil & Gas:
India imports more than 85% of its oil & around 50% of the gas from other countries. As the dollar holds strong against Indian Rupee, this sector is negatively impacted. Crude importers such as Indian Oil, BPCL, HPCL and gas importers such as GAIL, & GSPC is facing a rise in purchasing cost.
FMCG:
The majority of raw materials such as crude & palm oil derivatives are imported which accounts for 50% of the input cost. But due to the falling value of the rupee companies are increasing the prices to compensate for the increase in the input cost.
Electronics:
When it comes to electronics, about 40 to 60% of the total input cost comes from imported components and machines. India imported closer to $56.73Bn in electrical, & electronic equipment in 2021. Especially in the smartphone sector, around 70 to 80% of the input cost is imported. Now due to the increase in value of the dollar, their cost of making is also increased.
Positive Impact:  
There is a positive impact of the falling rupee on the Indian economy.
Higher exports:
When the rupee falls, Indian exports become cheaper for foreign buyers. This then leads to an increase in demand for Indian goods in foreign markets. Due to this a fall in the value of the Indian rupee can help boost exports.
Higher Export Value
Higher Export Value
Supports domestic industries:
When the rupee falls, import costs increase. This helps domestic industries as it will be easier to compete with the prices of imported goods. In the market, Indian companies are competing with multinational companies for goods. These Indian companies might find it easier to compete with MNCs as import costs increases.
Improving trade balance :
If domestic companies succeed in taking advantage of the rupee falling with made-in-India products that can substitute imported goods then India’s trade balance might improve.
 
Negative impact: 
Higher import costs:
When the rupee falls, imports become costlier. This leads to an increase in the prices of imported goods.
Increase in oil & gas prices
Increase in oil & gas prices
Might drive capital out of India :
When the rupee falls, the value of capital invested by foreign investors will shrink. This leads to foreign investors pulling out their money from Indian stocks and bonds.
Suppose a foreign entity named ABC has invested $1Mn in Indian equities & expecting a return of more than 10% in 1 year. If the value of the rupee fails, then the equity’s returns might decrease in its value.
If the domestic sectors/ industries are failed to take advantage of the rupee falling & if foreign investor pulls out their investment then the value of the rupee may fail more than expected. The reason for this increase in value fall is higher import costs & capital outflows would increase the supply of the Indian rupee & the demand for foreign currency.
Conclusion
Due to the fall of the Indian rupee, the costs of many goods and services are impacted. The majority of sectors such as IT, Pharma, Garments, Oil, Gas, & Tea sectors are impacted the most. Though most sectors are impacted, it is beneficial for most of them. Taking one example is the IT sector as they bill most of their clients in US Dollars. Also, profits are expected to rise for the tea sector.
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