2012: Probable ‘YO-YO’ Year for Indian economy

2012: Probable ‘YO-YO’ Year for Indian economy due to rupee depreciation

Past four months have witnessed Rupee depreciation in comparison to dollar which indicates that India’s currency has lost its value in comparison to US dollar. The rupee is down 16 percent this year. “The rupee has already touched record lows and so exporters may look to cash-in at the year-end, while importers will try to hedge against further weakness,” said a foreign exchange trader at a state-owned bank . The probable impacts of rupee deprecation will be:-

1.     Inflation will be the key risk due to depreciation of rupee. Past two years have been scary for Indians due to inflation. Inflation will rise as India is net importer, and crude being primary import, the cost of importing crude will rise even if the price of crude falls in international markets.

2.     Indian corporate sector which import raw materials from abroad will also be hit hard as they have to pay more for imports and therefore their profit margin will suffer.

3.     Small importers will also be in pain as they too have to pay more for dollar, which in turn would make some smaller importers to go out of business or may even lead to bankruptcy.

4.     Exporters like IT companies will be benefited because of rupee depreciation as they will receive more rupees per dollar which improve their bottom line and hence more profits for them.

5.     The rupee's depreciation will hit infrastructure sector projects dependent on international market borrowings and imported equipment in a big way.

6.     Foreigners coming to India will find it cheap to come to India which will in turn benefit the hospitality sector.

7.      Other people like non resident Indians who remit dollars to India will also benefit out of this.

8.     Students going abroad for further studies and Indians going to foreign travel will be pinched hard due to his movement in rupee.

Rupee deprecation has more disadvantages than advantages and if this fall is not controlled in time than it can have serious effects on the Indian growth story and also it can lead to downgrading of Indian economy by rating agencies all over the world.