How a falling INR is bankrupting you | 10 Key Impacts | Akshat Shrivastava

Summary

This video discusses the impact of the falling Indian Rupee (INR) against the US Dollar, highlighting 10 key consequences for individuals and the economy. The depreciation of the INR affects everything from studying abroad, vacationing, and savings to foreign investments and production costs. The video explains how this currency drop discourages imports, drives foreign wealth away, and leads to higher inflation and asset prices in India. It also offers practical solutions, such as investing in high-growth assets like US stocks, hard assets like real estate or gold, and considering earning in US Dollars to hedge against currency depreciation.

Takeaways

• 😀 The Indian Rupee (INR) has significantly depreciated over the past decade, impacting purchasing power and international transactions.
• 😀 The value of INR has fallen by approximately 35-40% since 2014, making foreign goods and services much more expensive for Indian consumers.
• 😀 A depreciating INR poses challenges for Indians traveling abroad or seeking foreign education, with costs increasing in tandem with the currency’s decline.
• 😀 Foreign investments in India are negatively impacted by INR depreciation, as the value of returns is eroded when converted back into stronger currencies like USD.
• 😀 Import costs, particularly for essential goods like oil, rise as the INR weakens, contributing to higher national expenses and inflation.
• 😀 The rising cost of production in India due to a weaker INR is putting pressure on domestic manufacturing industries, leading to inflationary effects on goods.
• 😀 Wages in India are not keeping pace with the depreciation of INR, leading to a reduction in the real purchasing power of Indian workers.
• 😀 Despite the fall of INR, exports haven’t risen substantially, as Indian goods still face competition in terms of quality and global demand.
• 😀 Real estate prices are becoming more affordable for foreign buyers, but remain out of reach for many domestic buyers due to the weakening INR.
• 😀 To safeguard wealth from depreciation, consider investing in hard assets like gold, Bitcoin, or land, which serve as hedges against inflation.
• 😀 High-growth investment opportunities, such as stocks, especially in international markets (like the US), can help offset INR depreciation and grow wealth.
• 😀 Platforms like Vested offer opportunities for investing in US stocks, enabling Indians to protect their wealth in stronger currencies.

Q & A

Why is the depreciation of INR a concern for people studying abroad?

The depreciation of the INR increases the cost of studying abroad, as the value of the rupee falls against foreign currencies like the USD. For instance, a tuition fee that would have been 1 crore INR in 2014 may now cost 1.4 crore INR due to the 35-40% depreciation of the rupee over the past decade.

How does the fall of the INR affect foreign investors?

Foreign investors may hesitate to invest in India when the INR is depreciating because the value of their returns, once converted back to their own currency, could be significantly lower. As a result, there has been an outflow of foreign investment, with investors preferring more stable currencies.

What is the relationship between INR depreciation and India's import costs?

As INR depreciates, the cost of imports rises because India has to pay more rupees to buy the same quantity of foreign goods. This impacts everything from energy imports to consumer products, leading to a higher overall import bill for the country.

How does the fall of the INR affect the cost of production in India?

The depreciation of the INR raises the cost of production in India because many inputs, such as components for products like iPhones, are imported. As the cost of imports rises, so does the overall cost of producing goods, potentially leading to higher consumer prices.

Why don't wages in India rise proportionally with the depreciation of the INR?

In India, there is a large supply of labor, particularly for lower-wage jobs. This oversupply prevents wages from increasing in line with the depreciation of the INR, meaning workers' purchasing power effectively declines despite the fall in currency value.

How does the depreciation of INR affect savings and investments in India?

Depreciation erodes the value of savings and investments in INR. If you have savings in rupees, their purchasing power decreases over time due to the fall in the currency's value. This can be mitigated by investing in assets that grow faster than the depreciation rate, like stocks or real estate.

What are some strategies to protect wealth during INR depreciation?

To protect wealth, one can invest in hard assets like gold, Bitcoin, or real estate, which tend to hold value or appreciate over time. Additionally, investing in high-growth assets, such as stocks, can provide returns that outpace the depreciation of the currency.

Why doesn't the depreciation of INR automatically lead to a rise in exports?

While depreciation theoretically makes Indian products cheaper for foreign buyers, it doesn't automatically increase exports. The key issue is the quality and competitiveness of Indian products, which often fall short compared to those from countries like China. This limits the impact of a weaker INR on export growth.

How does the depreciation of INR affect the Indian government's purchasing power?

As the INR depreciates, the government’s reserves, which are held in foreign currencies, lose value. This reduces the government's ability to spend effectively, and they may resort to raising taxes to compensate for the loss in purchasing power.

What is the rupee trade settlement system, and why did it fail?

The rupee trade settlement system was an attempt by India to conduct trade with countries like Russia in INR instead of relying on the USD. However, it failed because Russia couldn’t find external uses for INR, limiting its utility, which led to the system being abandoned.