JOIN USPushpa Shetty, mother of a teenager who works with the marketing department of an English daily at Mumbai’s Nariman Point, has now stopped using tomatoes for cooking meals at home.
Reason: she cannot afford tomatoes priced so exorbitantly at Rs 80 per kg as against Rs 30 per kg just two months back -- thanks to inflation and rupee depreciation.
Rupesh Singh, a mathematics teacher at a convent school in Thane and father of two school-going kids, found his home-budgeting exercise going awry and was forced to do away with certain favourite vegetables like cauliflower priced Rs 100 per kg, and settle for relatively cheap items. Blame it on the double whammy (spiralling inflation and volatility of rupee).
As far as vegetables go, there is no such thing called ‘cheaper’ price these days, with peas (mutter) priced at Rs 100 per kg, and lady’s finger (bhendi) and carrot at Rs 80 per kg, but the ubiquitous vegetable hawker, just to make you comfortable, shouts out prices of vegetables per 250 gram. So much so, that a big mall’s ‘Wednesday Bazaar’ in Mumbai has a catchline saying: ‘Hafte ka sabse sasta din’ (meaning: cheapest (price-wise) day of the week) and sells lady’s finger at Rs 19.90 per 250 gram, which effectively means Rs 79.60 per kg, all in the name of a cheaper price.
Simply put, vegetable prices have doubled or even more in the last three months. The irony is that although the rupee dropped by about 12-13 per cent during last 2-3 months, still it has not caught the fancy or attention of the common man. For one, the ’common man’ is busy working day and night to make his life more comfortable, but is far off from ground reality -- every single day of rupee fall is making him poorer.
By and large, effects of the rupee weakening in India are linked to macro economic factors like economic slowdown, declining corporate earnings and fiscal deficit, but they fail to highlight its implications for the common man. “The sharp rupee depreciation could offset the impact of softening commodity prices and thus push up imported inflation to some extent in the near term,” says Angel Broking economist Bhupali Gursale.
The falling rupee pinches a common man's pocket in many ways: be it pulses, soap, detergent, or your favourite pizza, their prices are headed north. Given the domestic demand-supply imbalance, a substantial quantity of pulses and edible oils is imported, having an impact on the import bill of such items. In simple terms, a weak rupee makes your daily meals pricier too.
Grocery bill to shoot up
To start with, a weak rupee will influence petrol and diesel prices and this in turn will add to the logistics cost of goods. Pulses, edible oil, soaps and detergents will see the same fate impacting the household budget. Rupee depreciation makes all imports like crude oil, fertilizers and iron ore dearer, even though we do not buy them directly but we still bear the brunt indirectly through soaring prices of finished products.
A survey conducted by the business chamber Assocham recently pointed out that the middle income group (MIG) has been impacted by inflation particularly in context of falling rupee and its cascading effect on price rise of petroleum products, edible oil, higher foreign education, foreign trips to the extent of 15-20 per cent to manage their household budgets.
The depreciating rupee is a sure dampener if your kin is studying abroad as you have to bear the brunt most, with expenses incurred for education and living there shooting up. For instance, if a meal, which cost around Rs 385 (Rs 55/$) then, will now cost Rs. 425 (Rs 60.1/$) and similarly for all the expenses including fee.
Ditto, if you want to celebrate your honey-moon or wedding anniversary abroad, then your travel and hotel charges for you and your spouse will escalate drastically – let alone shopping and other indulgences – as your local currency now would buy less dollars than few months ago. Also, over all expenses will rise by 5-7 per cent individually, besides your travel cover, denominated in US dollars and is mandatory in some cases may see an upward revision of premium, if the rupee fall trend continues.
However, the rupee's sharp slide is not a sudden development.
It started falling in 2008 when the global economy went into a tailspin and by March 2009, as the local currency slipped to 52 versus the greenback. But it strengthened in the following year as India managed to avoid the worst of the global turmoil.
However, the bullish sentiment didn't last long, and the rupee resumed its downward journey in the second half of 2011 as the economy began to slowdown and the current account deficit widened.
Government data last week reveal exports during April-May this year changed little at $48.67 billion compared with $48.57 billion last year. Importers have suffered too, as they need to pay more rupees for every dollar.
The rupee dropped nearly 7 per cent in June alone to breach the psychological barrier of 60 to a dollar, as foreign funds pulled $7-8 billion from the country's equity and debt markets.
Where is the rupee headed?
India Forex Advisors, a foreign exchange and treasury consultancy, predicts the rupee could touch 62 if it sustains above 60 for some time and there are no serious efforts to strengthen the currency. Its founder & CEO Abhishek Goenka pointed out: “If the rupee remains at elevated levels, it will be difficult for the RBI to cut interest rates despite inflation easing.” However, Angel Commodity Broking’s Reena Rohit said, “Measures to curtail volatility in the rupee are expected to lead to appreciation in the currency.”
Meanwhile, the rupee last Friday breached the 60-mark against dollar again in intraday trade on the back of heavy dollar demand by oil importers. So much so, it took a toll on the bond market as the yield on the 10-year benchmark bond 2023 ended at 7.54 per cent on Friday compared with the previous close of 7.47 per cent.
With a free falling rupee, the ‘perception’ of currency risk has gone up. With the RBI exploring the possibility of dollar sales directly to oil marketing firms, which is still to fructify, the demand for dollars is likely to continue and it will be more than their supply in the time to come. It only means that rupee will keep depreciating against the dollar unabated. CLSA economist Rajiv Mallik summarises the situation best in a recent column saying: “Prepare for the rupee at 65-70 per US dollar next year. That still won’t be the end of the story.”
India imports about 75 per cent of its crude oil requirements and higher prices of the commodity usually reflects in higher retail fuel costs -- a cascading impact – as it would push up the cost of ferrying goods including food items across locations and this in turn would knock up overall prices. It’s not just through soaring fuel costs that will push food prices.
Higher prices can hurt family budgets hard, especially at a time when companies in India, squeezed by high input and borrowing costs, have offered meagre salary hikes and are holding back on expansion and hiring activities. Your LPG cylinder for cooking could cost more by over Rs 100, not to mention fuel prices that invariably goes up – for rupee weakening or surging crude price.
Your (fancy) car dreams can take a hit, so isyour passion for high-end mobile handsets or gadgets need to be curbed – irrespective of interest free EMIs offer. “It is never an easy decision to increase the prices in the difficult market situation but car companies are left with no choice but to increase prices as they are not able to absorb the impact within themselves,” a Honda spokesperson said.
Domestic handset manufacturers too were keeping a tab on currency fluctuation and if the situation does not improve, they would have to increase the prices of their products. “There is a cause of concern as our entire duty transaction is in dollar terms. We are not sure if we would be able to absorb the entire steep fall…. and things remain the same we’ll have no option but to pass on the burden to the consumer,” Lava co-founder & director S N Rai said. Clearly, estimates vary but the rupee's trajectory in coming months is anybody's guess.