The on-going rise in the US dollar against the
Indian rupee has had a massive impact on India’s economy and daily life. The
value of the dollar is increasing for several days and the value of Rupee is
making new records of touching new bottoms on regular basis. People in general
may think" why should we bother about higher value of the dollar?" As
they are not using dollar in their daily lives or day to day transactions, they can
think this way.
No, it's not that simple. In fact, our economy and even the lives of the
common people are closely related to the fluctuations of the dollar. The
devaluation of the rupee can create ripple effects across various sectors,
businesses, and industries. This article discusses how different parts of the
economy are impacted by the falling rupee, which sectors are most affected, and
which sectors stand to benefit from the situation, how the lives of the common
people are affected with the appreciation of the dollar against the Indian
rupee.
Several factors contribute to the rise in the US
dollar against the Indian rupee. These factors are rooted in global economic
trends and policy decisions. Below are the primary reasons:
1. US Federal Reserve Interest
Rate Hikes
The US Federal Reserve raises interest rates to
combat inflation. Higher interest rates in the US attract foreign investors
seeking better returns on their investments. As more capital flows into the US,
demand for the dollar increases, pushing its value higher.
2. Global Economic Uncertainty
In times of global economic uncertainty or
geopolitical tensions, investors tend to seek safe-haven assets like the US
dollar. The dollar strengthens as it is perceived as a stable and secure
currency during crises.
3. India’s Trade Deficit
India imports more than it exports, leading to a
trade deficit. Among the commodities India imports are Fuel oil, computers and
its equipment’s, electrical parts and appliances, pearls, Diamonds, costly
stones, various chemicals and edible oils, spices and many different
commodities. These increase demand for foreign currency, particularly the
dollar, to pay for imports. A larger trade deficit weakens the rupee as more
dollars are needed to settle international transactions. This is the most vital
reason for appreciation of the dollar.
4. Outflow of Foreign Investments
When foreign investors pull out their investments
from Indian markets, particularly during periods of economic uncertainty, they
convert their rupee holdings into dollars. This increased demand for the dollar
leads to its appreciation against the rupee. Lately we have experienced such
type of situation in our stock market.
5. Higher Oil Prices
India is a major importer of crude oil, priced in
dollars. When global oil prices rise, India needs more dollars to pay for its
oil imports. This increases the demand for dollars and weakens the rupee
further.
6. Global Inflation and Supply Chain
Disruptions
Post-pandemic inflation and global supply chain
disruptions have increased costs worldwide. Countries like India, which depend
on imports for critical goods, need more dollars to meet these rising costs,
contributing to the dollar's appreciation.
Impact on the
Indian Economy
The stronger US dollar puts downside pressure on
Indian rupee which directly affects India's economic stability. As the value of
the dollar rises, India faces several economic challenges:
Inflation
The higher exchange rate raises the cost of
imports, which in turn drives up chance of inflation. India imports key commodities
such as oil, machinery, electronics, medical equipment’s, electrical equipment’s,
computers and parts etc. When the rupee loses value, the cost of these goods
rises, making everyday products more expensive for consumers.
Trade
Deficit
A weaker rupee widens India’s trade deficit. As
India imports more than it exports, the rising cost of imports results in a
larger gap between imports and exports. This weakens the country's current
account and puts pressure on the national currency.
Foreign
Debt
India holds a considerable amount of foreign debt,
especially in dollars. When the rupee depreciates, the cost of servicing this
debt increases. This puts further strain on the government’s finances,
diverting resources away from development projects.
Impact on Various
Sectors
Different sectors of the Indian economy are
affected in unique ways by the weakening rupee. Some are negatively impacted,
while others benefit from the currency fluctuation.
Sectors Negatively
Affected
Oil and Gas
India is a major importer of crude oil. A higher dollar rate increases the cost
of importing oil, which directly leads to higher fuel prices. This increase in
fuel prices has a cascading effect, pushing up transportation costs, which, in
turn, increases the cost of goods.
Automobile
The automobile industry heavily relies on imported components and raw
materials. As import prices rise, the cost of production increases, leading to
higher prices for vehicles. This weakens consumer demand, affecting sales and
profitability.
Pharmaceuticals
Although India is a major exporter of pharmaceuticals, the sector also relies
on imported raw materials, particularly Active Pharmaceutical Ingredients
(APIs). With a falling rupee, the cost of importing these materials rises,
increasing production costs.
Given above is the monthly chart of
USDINR, already crossing last month's candle. It is very negative sign for the
Indian rupee.
Sectors That Benefit
Information
Technology (IT)
The IT sector stands to benefit from a higher dollar rate. As
Indian IT companies earn a significant portion of their revenue in dollars, a
stronger dollar increases their earnings in rupees. This boosts their
profitability and encourages growth in the sector.
Textiles and Garments
Textile and
garment exporters also benefit from a weaker rupee. As they export goods to
foreign markets, they receive payment in dollars. A stronger dollar boosts
their revenue, helping them compete globally by offering more attractive
prices.
Tourism
Inbound
tourism benefits from a weaker rupee. Foreign tourists find India more
affordable, which boosts travel and tourism-related businesses. As foreign
visitors spend more in the country, the tourism sector gains a competitive
advantage.
Impact on Businesses
Businesses that rely heavily on imports face cost pressures due
to the higher dollar rate. Companies must either absorb the higher costs or
pass them on to consumers. However, companies with significant export earnings
stand to gain from the dollar’s rise.
Import-Dependent Businesses
Import-heavy industries such as electronics, chemicals, and
automobiles face increased production costs. This impacts profit margins and
may force businesses to raise prices, which could reduce consumer demand.
Export-Driven Businesses
On the other hand, businesses that export goods or services
benefit from the higher dollar rate. Sectors like IT, textiles, and
pharmaceuticals that export products and services receive higher rupee
earnings, boosting their revenue and market competitiveness.
Impact on Industries
Manufacturing
The manufacturing sector, especially those dependent on imported
raw materials, is adversely affected. The increased cost of inputs raises
production expenses, making goods more expensive and less competitive in both
domestic and international markets.
Consumer Goods
The consumer goods industry also suffers as rising import costs
increase the price of everyday items, from electronics to food products. These
price hikes hurt consumer sentiment and reduce spending.
Services
The services sector, particularly IT and outsourcing, benefits
from the rupee's fall. With revenue in foreign currencies, service providers
gain from the exchange rate, strengthening their global standing.
Impact
on Gold and Foreign Reserves
Gold Prices
India is one of the largest consumers of gold in the world. A
falling rupee increases the price of gold in the domestic market, making it
more expensive for consumers. Higher gold prices reduce demand for the metal,
particularly during festivals and wedding seasons.
Foreign Exchange Reserves
In such situation, Reserve Bank of India takes some actions to
curb the rising dollar effect on the economy. One of the popular steps that RBI
takes is to sell dollars from the currency reserves. It is an attempt to
increase the supply of dollars in the market to refrain from free fall of
rupee. Such actions we have seen recently, when Indian foreign reserves fell
potentially. In the week ending December 20, India's reserves fell by $
8.48 billion to $ 64.639 billion. Thus India’s foreign exchange reserves are used to
stabilize the rupee when it falls sharply. As the country burns through these
reserves to support the rupee, it risks depleting its buffer against external
shocks. This weakens investor confidence and may lead to further depreciation
of the rupee.
Impact
on Daily Lives
The average Indian consumers feel the impact of falling
rupee in multiple ways:
Higher Prices
Consumers face higher prices for everyday goods, from food items
to consumer electronics. Imported goods become more expensive, and even
domestically produced goods can see price hikes due to higher fuel and
transportation costs.
Fuel and Transport Costs
As fuel prices rise due to the increased cost of oil imports,
transportation costs also surge. This directly affects the cost of commuting,
traveling, and transporting goods, which trickles down to consumers in the form
of price hikes.
Cost of Foreign Education and Travel
Indians studying or traveling abroad face higher expenses. As
the rupee weakens, the cost of paying for foreign tuition, accommodation, and
other expenses rises significantly. Travel costs, including flight tickets,
also become more expensive.
Conclusion
The on-going depreciation of the rupee against the dollar has a
widespread impact on India's economy, industries, businesses, and daily life.
Import-dependent sectors face cost pressures, while export-driven sectors like
IT and textiles benefit.
For the average Indian, rising prices, higher fuel costs, and
increased expenses for foreign education and travel are the most immediate
effects. While some sectors stand to gain from the situation, the overall
economy faces inflationary pressures and increased debt burdens, which could
slow down growth in the long term.
Effective economic policies will be critical in mitigating the adverse effects of the falling rupee and supporting the country’s economic stability. In the year 1947 dollar was 4.16 rupees, and in 2025 it has touched 86 rupees. It tells that in the long term dollar, sensex, overall stock market are always in uptrend.
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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