Rupee is on a sudden and determined climb

Canute D’Souza, 26, has been working on a cruise liner in the US for the last three years. It is hard work, and tough on him because he is away from his family for most of the year. But D’souza still goes through all the trouble for one reason: when his US dollar salary is converted into rupees, his wealth is magnified.

Millions of Indians who work abroad have benefited from a weaker rupee for years. But that is changing now. The Indian currency has turned around this year, rising by 9 per cent, making individuals like D’Souza poorer by a few precious thousand rupees.

“The last time I came home, I sold each of my dollars at Rs48 but this time the rate has dropped to Rs39.50. For the same amount of dollars I got close to Rs2 lakh last year, but just over a lakh this year,” he says, not knowing whom to blame.

Lower returns for overseas remittances is probably the biggest negative to the rupee’s rise. India receives some of the highest remittances in the world: overseas remittances contribute more than 3 per cent of the GDP and are the largest forex contributor.

However, the rupee’s rise has more positives than negatives. A higher rupee has the potential to make imported goods, foreign travel, studies abroad and medical expenses cheaper. Imported chocolates, cosmetics, cars, toys, medicines, foreign-made liquor would have the potential to become cheaper as well.

“When I travel abroad, my hotel bills will become cheaper; wine will become cheaper. Duties are coming down, which will help lower prices further,” says Jamal Mecklai, CEO, Mecklai Financial and Commercial Services.

But how cheap? Not enough to bring imported goods within the reach of the middle-class consumer, say experts. “It’s positive for consumers overall, but the change will only be marginal,” says Gibson Vedamani, president of the Retailers Association of India.

The key, say experts, is to see whether the rupee continues to rise or whether it is just a one-off phase. Also, it is unlikely that the rupee’s rise will really benefit the common man or will attract more people to buy imported goods.
“The common man does not travel abroad or buy imported products, and the well-heeled Indian imports irrespective of the cost. Also, importers may not pass on the benefits of cheaper imports to customers,” says Prabal Banerjee, CFO, Hinduja Group. “These products are price-inelastic and, for consumers who buy them, it does not matter if they pay a few rupees more or less.”

Sankalp Value Retail, which sells imported goods through its MyDollar shop, is awaiting the impact of the rupee’s rise on its sales. “It takes around three months for imported goods to get here, so the goods we ordered after the rise will come to us only after a month,” says Ajoy Krishnamurthy, CEO, Sankalp Value Retail.

MyDollar sells imported goods at a fixed rate of Rs99. Krishnamurthy says the rupee’s rise would enable him to buy better quality products and sell them at the same fixed price. “For example, I can sell a larger soft toy for the same price. I don’t think the customer knows or cares whether the rupee has risen, but he sees that he is getting more at the same price.”

Imported medicines and machinery may also become cheaper. However, “foreign funds may think twice before investing here because the rupee may depreciate from the current level,” says NS Paramsivam, head of treasury, Essar Group.

There could also be a slowdown in foreign tourists. But travel companies say they do not expect an immediate impact because travel plans are usually made in advance. “People coming to India book up to eight months in advance and the rupee’s rise has had only a marginal impact of 1-2 per cent,” says a spokesperson from the travel company Cox & Kings.