Students who have been planning to go the United States for higher studies have put their plans on hold due to rise in the fees following rupee depreciation. Some, who have already applied for loans in the banks fear that they would have to raise the additional amount by some other means. And the ones who have their third and fourth semester left, also have to shell out more money.
As for consumers, the cost of electronics and mobile phones will increase sharply with the dollar getting more stronger. Even the Indian mobile companies, who import most of their mobile parts from foreign, will increase the prices of their products to meet the rising cost of production. Everybody, in some way or the other, is feeling the brunt of falling rupee. What has caused the depreciation of Indian rupee? And what happened today, that the rupee touched 60?
There have been reasons for such a plummeting fall of Indian rupee, the main reason being, which has resulted the markets all over the world tumble, is the signal by the US Federal Reserve that it could scale back its economic stimulus programme. Now, what is this economic stimulus programme? For 5 years, Fed has been pursuing an aggressive monetary policy to surge the U.S. economy which was on a decline following a financial crisis in 2008. Quantitative easing(QE), the programme, under which, the Fed buys $85 billion of financial assets each month, boosted the borrowing and spending. But now, as the U.S. economy has surged and unemployment has also decreased drastically and the economy is showing signs of recovery, the Fed has decided to slow down the purchasing this year and then end it by next year. This has caused huge concerns for the investors, which resulted in the global stock markets falling sharply.
Apart from this, there are many other reasons, which has led to this steep fall in the Indian rupee. The U.S. economy is showing signs of recovery, which in turn has strengthened the dollar. Gaping current-account deficit(CAD), caused by India’s huge reliance on oil and gold imports. CAD hit an all-time high of 6.7% in October-December quarter. High inflation is another factor responsible for depreciation of rupee. Exports have also suffered due to the Eurozone crisis and the overall slowdown of global economy.
Owing to such multiple factors, Indians have been bearing the brunt of a continual fall in the Rupee. Government’s chief economic advisor, Raghuram Rajan commented on this situation. He said that they are not short of actions and instruments as and when need arises. Rupee is not in shambles and, thus, he cautioned against being overtly pessimistic. Finance ministry, RBI and SEBI have been closely watching the markets, he said. He also said that they are alert to developments, do not like volatility and will take actions when necessary.
The question remains, with two main economists, Dr. Manmohan Singh and P. Chidambaram, holding key posts in the office, why is India in such a bad economic situation? First a slowdown in growth, and now this harrowing situation of rupee depreciation. When will India get out this economic crisis, remains the ultimate question. As of now, benefitted are those Indian students who have just passed out from the U.S. universities and have secured a job for themselves. They will repay their loans in U.S. dollars!