Now that you’ve understood the reasons behind a strengthening Indian Rupee, let’s see the winners and losers of a strong rupee. India is an import driven country which means we buy a lot of goods and services from other countries and need to pay for them in dollars. So when the rupee is strong we pay fewer dollars for our imports and vice-versa. Based on this, here’s who wins and loses when the rupee becomes strong –
Crude oil: Major of our crude requirements are fulfilled through imports. Crude oil is bought in dollars, so stronger rupee means cheaper crude oil for us.
Government: When the government’s total expenditure exceeds total revenue its called a fiscal deficit. To meet this deficit the government borrows money from other countries. So if the rupee is stronger they will have to pay less in terms of interest and principal amount repayment.
Capital goods, telecom, FMCG, real estate & infrastructure sectors: This is because their cost of production reduces due to a reduction in oil prices, energy product prices also reduce and ultimately the sector is benefited.
Banks: Overall a stronger rupee reduces inflation and this helps banks ease borrowing rates. As a result, people will borrow more and spend more and thus increase economic activity.
Stock markets: Stronger Rupee attracts foreign participants in stock markets, this spurs growth in our markets and a positive stock market only mean positive economic growth.
Foreign Direct Investments: A strong rupee shows a promising future and as a result foreign companies want to invest in India for the long run, these investments increase our standard of living and provide lot of benefits like employment opportunities too. For e.g. Walmart in India.
Export-driven sectors, IT, textile, pharma: If rupee becomes stronger, exports become cheaper. This is because countries will now have to shell out more dollars to buy the same commodity than before. For instance, when countries like Brazil and Russia saw their currencies depreciate, their exports picked up rapidly.
Therefore, the rising rupee is bad for exporters, but this can always be solved through certain strategies.
So from all this, you can say that a rising rupee is positive but like everything that has its pro’s and con’s this too has a few cons, but the pro’s definitely outnumber the cons. Want to read more on the Indian rupee, let us know in the comments below.