Prakhar Singh
on 06 August, 2013

Impact Of Falling Rupee On Collegians


The Indian Rupee has fallen to an all time low in recent weeks, putting pressure on nearly every facet of the once booming economy. The depreciation is affecting many who are already hurt by the country's high inflation rate. Some of the key reasons attributed to the free fall have been continued dollar demand, month end requirement by corporate and oil companies, rise in the USD with respect to other currencies, bearish sentiments towards emerging economies and withdrawal of FIIs (Foreign Institutional Investor) from both debt and equity markets. Another factor often mentioned is that the RBI has chosen not to intervene, as it does not have the adequate ammunition to stall the fall.

Now, the falling rupee could be good news for investors as it's cushioning the impact of the dip in prices of global commodities, especially for investors who placed bets on commodities that are largely imported and NRI's for whom a weakening rupee means more value for every dollar they send home but the effects of the rupee’s depreciation will spread across much of the Indian economy, with most people eventually feeling the pinch especially the youth.

Take the example of New Delhi resident Jaskaran Lamba who knew pursuing a Masters in Public Administration at Columbia University in New York would be expensive. What he did not count on was a 13 percent drop in the rupee’s value in just two months to reach a record low of 60 against the U.S. dollar.

The additional financial burden has made him second guess whether starting the two year program in September will be worth it.“The fact remains that I am going to pay $100,000 and if that $100,000 means a difference of five rupees, that’s straight five lakhs (5,00,000 rupees or $8,500). Even if I take a loan or my parents are funding me, that’s a difference of five lakhs to them or to me from my savings,” Lamba stated.

He's not alone in this quandary. Foreign education is dream of many students from India. The exposure to the wider world, intellectual surroundings, competitive environment, and meritocracy are the factors that drive our youngsters to American or European shore for higher education. However, there exists a problem of funding.

In recent times, Government has directed banks to be more liberal in education loan and this has helped students. Even though the loan rates are still higher, there is real chance of getting loan for education abroad. This is a major help. When students go for education in foreign countries, they pay fees and incur expenses in dollars. When rupee goes down, the amount or rupee needed to pay in dollar is more. Hence, rupee depreciation adds to your funding requirement. However, the lucky ones are those who have just completed the course and entered their first job. The burden on them would reduce as they pay back their bank loans.

In addition, electronic consumer goods such as computers, televisions, mobile phones, etc. with imported components and books by foreign authors will also become costlier. Ideally, rupee depreciation should boost India's net exports depending upon the demand elasticities of its exportables and importables. Thus, firms in the net exporting sectors such as IT & ITES, pharmaceuticals, textiles and clothing should post better results. However, textile and IT sectors lack pricing power and may have to under-cut price in line with depreciating rupee entailing to a cut in remuneration. Additionally, eating in leading chain of restaurants, buying a new car and foreign vacation trips would also be adversely affected.

There is very little one can do about the currency exchange rate movements. So, it would be wise to focus on measures that will help reduce your overall expenses, including the loan requirement. "Students should first introspect on the real reason for studying abroad. They should also understand the employment rules, and be very sure about the universities that they apply to. They should save intelligently, consider other options of study, be prepared with all sources of funds and a back-up ," says Swati Salunkhe, Managing Director with Education Counselling firm Growth Centre India.

So far the government has been incompetent in curtailing the free fall of the Rupee and only time will tell if the situation improves or the burden on the people increases.

Image Credits - The Hindu


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Prakhar Singh


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