Know Why Indian Rupee Is Depreciating And What It Means For You | Details Here

The rupee has depreciated on account of deteriorating current-account deficit as India is importing more goods and services than exporting implying foreign currency are flying out of India

India’s current account deficit is projected to touch $105 billion (about Rs 8.37 lakh crore), or 3 per cent of the gross domestic product, this fiscal year ( Image Source :Getty )

The Indian rupee depreciated 7 paise, after breaching a series of all-time low, to touch 80.06 against the US dollar in early trade on Tuesday tracking the strength of greenback and firm crude oil prices. The rupee has fallen almost 7 per cent this year from about 74 at the start of 2022 due to several reasons.

Why is rupee falling?

Firstly, the rupee has depreciated on account of deteriorating current-account deficit because India is importing more goods and services than exporting.  It implies that more foreign currency (especially dollars) are flying out of India than what is coming in.

India’s current account deficit is projected to touch $105 billion (about Rs 8.37 lakh crore), or 3 per cent of the gross domestic product, this fiscal year, PTI reported citing a report by Bank of America (BofA) Securities.

Crude oil and other commodity prices have also increased on the back of conflict in Ukraine putting a pressure on the rupee to depreciate. Secondly, falling investments in the country also impacted the fall in rupee as the nation witnessed nearly $30 billion of foreign outflows from the equity markets so far this year. This has happened because the interest rates in the US are rising much faster than in India.

The government has tried to arrest the currency’s decline through measures including raising duties on gold imports . Other emerging market currencies are also reeling under the pressure as a hawkish Federal Reserve lures capital toward the US.

How does weakening rupee impact you?

Costs of imports rise: India will end up paying more for international purchases because more rupees will be paid for the same product than earlier. The ongoing trend hints at prices of foreign goods rising further on expectations of more weakening ahead.

Fuel and energy becomes costlier: With India importing more than 80 per cent of its oil, the weakening currency will force rise in the cost of international oil and energy products. This will lead to increase in fuel and energy prices as Indian oil refineries and marketing companies mostly pass on the additional exchange rate burden to consumers.

Foreign education and international travel become expensive: The cost of education and travel will increase as the depreciating rupee mean paying more rupee than you did before. With rupee depreciating by over 7 per cent this year against the dollar, US education and travel has turned 7 per cent more expensive.

Meanwhile the only positive aspect is that Indian exports get more desirable. A weakening currency helps exports and makes Indian goods competitive in international markets.