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Falling Rupee Adds to India’s Economic Woes

Falling Rupee Adds to India’s Economic Woesi
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July 22, 2013 11:32 AM
India's currency -- the rupee -- has fallen to an all time low in recent weeks, putting pressure on nearly every facet of the once booming economy. VOA New Delhi correspondent Aru Pande has more on how this depreciation is affecting many who are already hurt by the country's high inflation rate.
Aru Pande
India's currency - the 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.
 
New Delhi resident Jaskaran Lamba 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 [500,000 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 is not alone. Effects of the rupee’s depreciation will spread across much of the Indian economy, with most people eventually feeling the pinch.
 
Not only will imports, such as electronics and auto parts, be more expensive - but fuel costs will likely also go up.  India is the world’s fourth largest importer of oil - relying on imports for 80 percent of its crude needs.
 
Rising fuel prices means higher transportation costs that will hit consumers already dealing with high food inflation.

India is not alone in seeing its currency depreciate - other emerging markets like Brazil and South Africa have also been affected by the strengthening of the dollar. But economists here say the rupee was already under pressure from a high fiscal deficit, untamable inflation and a lack of foreign direct investment.
 
The falling rupee could help Indian exports by making them cheaper. But N. R. Bhanamurthy with the New Delhi-based National Institute of Public Finance and Policy said that is likely not enough to overcome many of the challenges that foreign companies face doing business in India.
 
 “I think it’s very important for the government to bring in more growth-oriented policies so that you attract more investment. In fact, you can control the domestic capital going out. For the last two to three months, there is a trend that domestic capital is going out,” said Bhanamurthy.

Whether it was dealing with bureaucracy or bribes, Anant Dehadrai saw firsthand the hurdles foreign companies face as a former head of a Japanese firm in India and now an investor in India’s health system. “If I have an opportunity to be in India or somewhere else, I would rather go somewhere else," Dehadrai stated. "Where it’s so much easier to do business. At the end of the day, I want to optimize my profits. Why should I come here?”

With two children living abroad, including a son who just finished law school in the United States, Dehadrai is acutely aware of the effect of the rupee’s depreciation.

He remembers paying 40 rupees against the dollar and hopes those days and that of India’s economic prosperity are not a thing of the past.

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