The rupee is in free fall. The Indian currency has now shed 1 per cent each day for the past two days. It has hit a new low of 56.19/USD on Wednesday. On Tuesday, it fell to a low of 55.47 against the US dollar, its lowest level ever. It is now down over 24 per cent in just one year.
Here are five things to note:
Overseas travel expensive: If you are concerned about your upcoming overseas summer holiday, there is not much you can do to cut costs. You will have to pay more for your foreign exchange. This is not a good time to plan an overseas holiday if money is an issue. Your overseas holiday is close to 24 per cent more expensive than it was a year ago. If you have surplus US dollars or other foreign currency from your previous travel, you could save some money.
Overseas education costs to rise: The close to 24 per cent fall in the value of the rupee means you will have shell out more for your child's education or for that executive MBA overseas that you plan to go for over the summer.
Buy shares of export-oriented companies or local consumer companies: There is opportunity in adversity. The BSE IT sector index rose 1 per cent on Tuesday when overall share prices fell. Export-oriented companies that receive revenue in foreign currency are your best bet for now. The BSE FMCG index dipped only 0.6 per cent, outperforming the BSE benchmark Sensex, which fell almost 1 per cent at close on Tuesday.
Government finances are faltering: The rupee is falling because the UPA government's finances are in disarray. There is a slowdown in gross domestic product or GDP growth. This means the government is likely to miss tax revenue targets as businesses and individuals will likely earn less profit due to slower growth. Although the government is talking about austerity, there is no cut in overall expenditure. Every analyst worth the name has called on the government to consolidate its fiscal position. Yet, the government has shown no inclination to cut costs or subsidies. Any reduction in budget deficits would be positive for the rupee.
Inflation: India imports more than it exports. Hence, it has a current account deficit. This means more dollar demand, which then hurts the value of the rupee. RBI has to print more money and this adds to inflation. If oil prices fall and gold imports slow through the year, it should ease some pressure on the rupee and curb inflation. However, this makes the country vulnerable to external shocks.
