Rupee weakening: A blessing in Disguise???

The newspapers & News channels ain’t just Greek and Latin… The Greece story was inevitable, so instead of cribbing over the crisis. Let’s look at how this crisis is not all that bad, at least for India.

Let us understand why this mess. Greece exits the euro, the euro currency weakens leads to dollar getting stronger, and as the dollar gets stronger the rupee weakens even further. So for us the electronic gadgets cost more. But let’s look at it through our country’s perspective.

  1. The Crude Oil is traded in dollars, the OPEC nations earn more dollars for the oil that they export. More dollars for the OPEC nations eventually brings down the crude oil production cost (Extracting cost). This might help in crude oil prices coming down* a bit (As OPEC’s aim is to regulate oil prices and keep a watch so that people do not shift to cleaner energy sources due to the rise in oil prices).  India imports crude oil so this would ease the inflation a bit.
  2. Unlike most of us who feel that India just imports crude oil to consume it completely, we are in for a shock (India ranks 22 in exporting of refined petroleum products). So this means weaker rupee gets
  3.  us more dollars.
  4. Eventually weak rupee is good for the exports of the country; IT companies will earn more dollars (if they haven’t hedged their risk against the volatility).
  5. Usually when the rupee weakens the foreign funds flow in as foreign investors buy more stocks.
  6. The NRI’s will want to send back their savings as Indian banks give close to 9% return on their Investments, whereas in other countries it’s too less. And a
    lso since the rupee is weakening RBI’s plans to cut the rates further in the next month’s review is out of question.
  7. Now when the rupee is weak, your products in the international market are cheaper so people will prefer Indian products over the others. This means more exports.

All of this leads to more of foreign funds flowing into the country. Currently with a growth rate of 6.9%,

India might just take advantage of the mess outside.

Contributed by M.S. Vamsi ( Class of 2013, IBS Mumbai)

This entry was posted by Uncategorized . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *