Indian Rupee Falling -an Adverse Impact on the Investments.

Topics: Monetary policy, Macroeconomics, Investment Pages: 3 (956 words) Published: June 28, 2012
INDIAN RUPEE –falling down

The Indian Rupee has been tumbling down in this recent times. There are plenty of reasons being quoted for it. Politicians and the Government insist that it is due to the weak macroeconomic signals in the broader global economy. The economists say that this is a result of weakening economic conditions in India. Analyst says, it is because of the Gold & price volatility . Whatever it is, the bottom line remains the same. Indian rupee has weakened. So should you as an investor and a NRE be worried about it? The answer is yes. A falling rupee has a direct impact on your investments. Allow us to explain how this happens. When the value of rupee falls, there are two things that happen. First is that the exports from the country become more attractive to global consumers. This means that the exports should go up. When this happens, it is good because the income of the country and hence its GDP goes up. But what happens if the global demand itself is depressed? Well this is exactly what happened with India. The demand from the developed world especially from US and Europe, which are the biggest markets for Indian goods, was depressed during the whole of last year. And it still continues to be depressed. As a result exports remained tepid.

The second impact of the falling rupee is on the imports. Companies that import their raw materials and key items, end up seeing their costs go up. Now during happier times, these companies are able to pass on the increase in costs to their customers. But in times like the ones we are living in right now, domestic demand too continues to be depressed. High inflation as well as high interest rates are some reasons for the same. So when domestic demand is low, these companies find it difficult if not impossible to charge back the increased costs to the customers. As a result they end up taking a hit on their margins and ultimately reduce the imports and its related production.

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