Weakening Rupee: Good for NRIs, Bad for Indian Economy

The rupee is falling. And it is good news, as usual, for the NRIs, who are in the habit of remitting money to India. This works well for the salaried class who can now send more money to their loved ones in India for the same dollar amount. With India receiving the highest remittance in the world ($55 billion in 2010), a fall in rupee can actually benefit the whole NRI population.

Right Time for NRIs to Send Money to India

The rupee is at a 32-month low against the dollar now. It is hovering above Rs. 52 now and some experts predict that it will move towards the Rs. 54 before hitting bottom. It has depreciated about 17% from the early August levels ($1 cost Rs. 44.0749 per Dollar on 1st August 2011).

This means that a NRI who remitted $1000 to her family in India in early August was able to send only around Rs. 44,100. But if she sends the $1000 three months later, when the rupee depreciated to Rs. 52, her family will receive Rs. 52000.

The fall in Rupee is not confined to Dollar alone, but it is depreciating against the Euro, the British Pound, Kuwaiti Dinar and other major currencies. A British Pound can buy you around Rs. 81.40 now, and a Kuwaiti Dinar is around Rs. 187. For NRIs it is high time you send money to your bank in India and benefit from this fall in rupee value.

High Oil Prices and Inflation

Even though Rupee depreciation benefits the NRIs, it is not good for the Indian economy. Pessimism about the growth of Indian economy, rising oil imports, widening current account deficits and reluctance of the RBI to intervene in the markets is contributing to the slide of the rupee.

Depreciating rupee raises the price of imports. Many companies depend on imported material for their production like automobiles, FMCG, tyres, and etc. The producers pass this on to the consumers. This will in turn push up the inflation rate, which is already high at 9.73%(October 2011 prices). Prices of cars, electronics, mobiles and computers will increase if the fall in rupee continues.

But what is going to hit the common man the most will be the rise in cost of petroleum products. Depreciating rupee will make the oil costlier to import. Oil price is already high in India and is fueling inflation. Therefore a further rise in oil prices will adversely affect the Indian economy.

Even though the weakening rupee is benefiting those working abroad, it is not particularly advantageous for the majority of the country. RBI needs to intervene aggressively to stem the fall of rupee. Earlier, when the rupee was around Rs. 51.80 against the dollar, some attempts were made by the RBI to buy dollar. But it is surprising that RBI is reluctant to enter the market at this crucial time.

The government together with the RBI must be pro-active to prevent further fall in rupee. The government must introduce new policies to bring optimism into the market and attract foreign investors. Without such actions our economy will be heading towards bad times, which we are not ready to face.

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