New Delhi, India

The rupee is falling day by day. On Monday, it fell to the level of 80 for the first time against the dollar. However, in the end, it closed at 79.98 with a fall of 16 paise. The rupee opened at 79.76 in the interbank foreign exchange market and touched a psychological low of 80 during trading. However, later the situation improved and it closed at 79.98. On Friday, it closed at Rs 79.82 per dollar, up by 17 paise against the dollar. Now again it hit its all-time low and breached the psychological mark of 80 per dollar on Tuesday. 

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What is the meaning of "falling rupee"?

A fall in the rupee against the dollar in the forex market means that the Indian currency is weakening. This means, that while importing from the United States or any country, India will have to pay more because the payment is done in dollars,i.e., less import cost more.

Sectors being affected 

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India imports 20.96 per cent of its GDP. It includes mineral fuels, oils, electrical machinery, nuclear reactors, mechanical appliances, jewellery and many more. As all these imports are done in dollars so the weakening of the Indian currency against the dollar is affecting these sectors. 

1. Oil and Gas

India imports over 85 per cent of oil and half of the gas it consumes. As the dollar is touching the sky, this sector is adversely impacted. Crude importers (Indian Oil, BPCL, HPCL, RIL, Nayara), as well as gas importers (GAIL, GSPC), will have to face a rise in purchase costs. 

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2. FMCG

Major raw materials such as crude and palm oil derivatives are imported and account for about half of the input cost. And now companies are increasing the prices to compensate for the higher input cost. 

3. Electronics 

On average, India imports $56.73 Billion in electrical, and electronic equipment in 2021. About 40-60 per cent of the total input cost including components is imported; In smartphones, around 70-80 per cent of the input cost is imported. Now that the value of the dollar has increased, then their cost will also likely increase. 

4. Telecom Services

Telecom companies spend around $6 billion annually on importing network gear. Gear imports become more expensive due to the depreciation of the rupee. 

5. Renewable Energy

Indian solar plants are largely dependent on imported solar cells and modules. This will increase the cost of the project, higher tariffs in future bids and so on. 

Also Read: Sri Lankan crisis: Economy lessons India can learn

Why is the rupee falling?

The main reason for this fall in the rupee is the rise in crude oil prices, foreign investors withdrawing money from the Indian market and the monotonous environment of domestic business. Brent crude futures, the global oil benchmark, jumped 0.72 per cent to $123.15 per barrel. According to provisional stock market data, foreign institutional investors were net sellers in the capital market. In June, Foreign Institutional Investors (FII) have withdrawn a record ₹50,203 crores from the stock market. 

How will it affect you?

The devaluation of the rupee will make imports costlier. Since the rupee has weakened against the dollar, importers will now pay more for the same quantity and price. People who are aiming to study abroad during this time would see an increase in the amount of the fees. People residing abroad who send money to their families in India would cost more as they will end up sending more in terms of the rupee. On the other hand, the depreciation of the rupee makes exports cheaper. 

(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)

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