Rupee fall: Overseas travellers, students and importers feel the pinch.

It was Destination Europe for Raman and Richa Kumar and the techie couple had all but chalked out their travel schedule for a well-deserved summer break at one of the continent's out-of this-world holiday spots.

Always looking to get a bigger bang for their buck, they had been poring over brochures till the last moment to clinch the best deal.

Their calculations went completely topsyturvy on Thursday when the rupee slide show took centrestage and the domestic currency appeared to be sinking to Mariana Trench-like depths.

"All our preparations have gone to waste. We will now have to start from scratch and recalibrate our plans with a place like Singapore or Bangkok in mind," Raman said, disappointment writ large on his face.

"If the rupee bends further, we might see a slowdown in international travel," Pratik Mazumder, head of marketing and strategic alliance at travel portal Yatra.com, confirmed. According to him, 2.5 million to 3 million people travel abroad every year on an average.

Harsh Joshi, whose daughter is doing her MBA at the Wharton School of the University of Pennsylvania in the US, was equally flabbergasted at the development. For him, the financial strain owing to the depreciation of the rupee was proving so great that he could well be forced to pull her out of UPenn and seek admission in some prestigious institute in a country like Australia - a big climbdown.

Indian students normally travel overseas in June and July to join their colleges and universities in September. The depreciation of the rupee will erode their budgets.

India Forex Advisors founder and CEO Abhishek Goenka explained: "The main impact would be on students studying abroad, with the cost of education going up by 25-30 per cent because of the fall in the rupee's value. Unless it strengthens, parents will be compelled to start sending fees either on a monthly or quarterly basis."

He said back-of-the-envelope math showed that the dent in such cases would be substantial: "The average spend for a two-year MBA course in the US and Spain was around Rs.50 lakh till recently. It has spiralled to Rs.80 lakh, with the rupee moving to the 54-level from 44 two years ago. The cost of a one-year MBA course in the UK has increased to Rs.40 lakh from Rs.25 lakh during the corresponding period."

These were just a few instances of the havoc the rupee's southward journey was wreaking. It nosedived to a four-and-a-half-month low of Rs.53.41 against the dollar on Thursday as India's widening current account deficit and falling foreign exchange reserves triggered fears that the Reserve Bank of India (RBI) would not be able to arrest the free fall of the domestic currency.

During intraday, the rupee had plunged to Rs.53.45. It was fast approaching the 54-level before the RBI stepped in to prop it up by selling dollars in the market for the second day in a row. This helped only to decelerate the pace of the fall. At the interbank foreign exchange market, the domestic currency had plunged to an intraday low of 53.47 on sustained dollar demand from importers amid weak equities.

Oil imports to be hit

In the past four months, the rupee has depreciated by 10 per cent against the US greenback. On December 15, 2011, it had plummeted to an intraday, all-time low of Rs.54.30. On Wednesday, it stood at Rs.52.96. It is felt that at this rate, the rupee will not take long to breach the 55-level.

The steep descent has driven up the cost of the country's oil and fertiliser imports, leading to a higher subsidy bill and weakening of the macroeconomic fundamentals of the economy by widening the fiscal deficit.

A major casualty of the rupee's depreciation would be oil importers, especially public sector oil companies which are not allowed to raise the prices of petrol, diesel as well as LPG. With crude at elevated levels, they will have to sacrifice at least 10 per cent of their profits even if the rupee does not fall further.

The prevalent oil prices will further deplete India's foreign exchange reserves and aggravate the current account position of the country, experts observed. On Thursday, the rupee plunged by 45 paise as speculators and oil importers purchased large amounts of dollars in anticipation of a further fall in the Indian currency.

The foreign exchange reserves of the country have also fallen owing to the whopping $ 185- billion trade deficit during 2011-12 and the exodus of foreign capital in the wake of the government's policy paralysis, apart from the stringent general antiavoidance rules (GAAR) proposed in the Union budget to check tax leakage.

FIIs pull out

The net portfolio outflows stood at $ 926 million in April alone in sharp contrast to the $ 13 billion inflows in January-February.

Market analysts said the RBI had been selling dollars in the interbank foreign exchange market to provide support to the rupee. Otherwise, the descent could have been more rapid.

Since FIIs were pulling out every day, the rupee was taking a battering. There was no major foreign exchange inflow because exports had been falling far short of imports owing to the skyrocketing prices of oil and fertilisers.

Moses Harding, head (economic and market research), IndusInd Bank, struck a note of caution: "The rupee has been under pressure for a long time. It will not recover unless the confusion on tax-related issues is resolved. Now, the forex market is waiting for clarity on GAAR. It is a matter of concern that the rupee is standing alone against all other currencies."

He was of the opinion that the market was demand-driven currently and the rupee would fall further as there will be a huge current account deficit.

Sensex plunges

"The fall of rupee is more due to sentimental effect than anything else. There has been no change in the fundamentals of the Indian economy since December to warrant such a fall," Pramit Brahmbhatt, the chief executive officer of Alpari India, a large forex dealing house, said.

The fall of the rupee also caused a bearish sentiment in the stock market. As a result, the BSE Sensex plunged by 151 points to close at 17,151.19 and NSE Sand P CNX Nifty also closed with a loss of 51 points at 5,188 points.

Analysts said the fall of rupee was giving sleepless nights to street players. If the rupee drops below its previous low, the equity markets would weaken further. Gold prices will also go up as a result of a weakening domestic currency. Though gold prices are low internationally, buyers have to pay more in India because the price of gold is linked to the dollar.

Consequently, there are chances that gold per 10 gram may cross the Rs.30,000-mark soon. The sole silver lining is that the falling rupee translates into better pricing for exporters and export-oriented units, but that doesn't alleviate the allround woes as a result of the rupee squeeze.

Source : indiatoday.intoday.in