Impact of rupee depreciation on us

It is said that an intrinsic characteristic of an Indian is to worry about the rising prices of the gold, even if one does not want to buy even a gram in distant future. For us, Gold has been the quintessential investment not just for financial needs but also for emotional milestones. We simply love the comfort that having gold in our lockers, does for us!

Recently though, given the increase in prices of gold and the freewheeling fall of the Indian Rupee, we have tried diminishing our worries through some funny jokes and moments. Many of us have commented on the trend through forwards and Face book updates. But however, we may laugh; we cannot deny that we are increasingly affected and are extremely worried. From arranging marriages and international holidays, to business exports and even the possibility of watching Cricket on our favorite channel is a question that is staring at our faces.

So what does this trend mean and how will it impact us?

Increased Fuel Prices – Driving that car or bike to your neighborhood mall now will cost a lot more than simply walking or cabbing it. India is not a self sufficient country in terms of oil consumption. Major part of our imports is oil. With the Rupee weakening against the Dollar, we will now pay more for Imports. A barrel of crude oil that cost Rs 5800 a month ago (when 1USD = Rs 58) now shows an increase of Rs 600, selling for Rs 6400 as the USD rises against the Rupee. Despite subsidies offered to the sector, expect State owned Companies to increase the price of fuel very soon.

Increase in price of transported goods Fuel costs more and hence so will transport. From food essentials to luxury items like white goods will now be a lot more expensive. An increase in fuel prices will impact an increase in the prices of our daily consumed goods, leading to high inflation and ironically, a higher standard / cost of living.

High Inflation = High Interest Rates – With an increase in inflation levels, the RBI and the Government will be forced to raise the rates of interest to ensure that levels of cash liquidity are maintained. Higher Interest Rates will curb Inflation, but will mean reduced profits for Businesses. Time to rethink that Diwali Bonus this year.

Direct Impact on Overseas Education and Tourism – Going abroad for future studies or to make that long awaited trip to Disneyland? Be ready to pay a lot more. Hiring a Chalet in Switzerland may no longer seem that rosy, as costs increase and the purchasing power of the Rupee falls down. Outbound Tourism will be directly hit.

Increase in price of GOLD (Read global commodity) - Let's face it. We love our Gold. But it is important to note that the prices of Gold have not increased given increased investments in Gold. Like Oil, Gold is no longer considered a safe commodity for investment. Like any other global commodity, including oil, the price hike in Gold is because of the fall in the Rupee. If we were to buy Gold now, we would be encouraging Imports of Gold, which would further contribute to the demand for Dollars and in turn, further depreciate the Rupee.Secondly, Gold is not an asset that yields a monthly return. It is usually lying unused in your locker but in essence it adds to a liquidity crunch and immense pressure on the Government to pay. Even if you disregard the macroeconomic perspective of Gold investments, do understand that once the Rupee stops depreciating and starts appreciating in value, the Gold you have invested in now, will give you no profits and may even cause loss for you in the long term, despite apparent increase in global prices of Gold.

Is there a silver lining?

Yes there is. It is said that tough times bring out the best in everyone and thus, this period of volatility will ensure that you are better disciplined at least financially. To ensure that there is a pot of gold at the end of the rainbow, here is what you need to do -

Stop buying or investing heavily in Gold. If required, buy Gold marginally and only if absolutely essential

Start walking, car pooling, biking and use less fuel. Despite the inherent health benefits for you, this will be robustly healthy for your bank balance too

The romantic Gondola ride in Venice or visiting the Eiffel Tower or having tea with the Queen at Buckingham Palace can wait another year. Postpone foreign travel till currency terms are more favorable

Be local and reduce buying Imported Goods thereby doing your bit to ensure no increase in the demand for Dollars

Encourage exports as this will bring us more bang for the buck when we receive payments in Dollars

Cash those remittance cheques now and buy property / investments for your loved ones staying abroad

The time now is to revisit our priorities and start being conscious of our financial decisions. The situation may be gloomy, but in all honestly, the time has never been more right for investing and achieving your financial goals. With price corrections all around, this is the time to buy, invest and hold and very soon, that pot of gold will be a reality.

We are not predicting gloom and neither will the sky fall on our heads as many news headlines presume and predict. Instead, by being aware, we will successfully navigate current financial potholes and traffic jams to steer and cruise on the expressway to financial independence.