How a plunging rupee hits YOU

So far, everyone has been talking about how the rupee’s precipitous fall is affecting exporters and investors.

Now, it’s the turn of consumers to get hit. A report in The Economic Times says the rupee’s fall is likely to prompt manufacturers of electronic devices such as digital cameras, television and personal computers to hike prices from next month.

Many consumer durable manufacturers use imported inputs. With the rupee’s fall, prices of those imports rise. Those increases in costs are usually passed, either in part or full, by manufacturers to consumers.

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The report said companies like Samsung, Panasonic, Akai, Canon, Dell and Acer said they are evaluating price increases of up to 6 percent across products because most of them have factored in imports at 51 against the greenback.

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Other device makers, like mobile phone manufacturers Blackberry and Nokia, are also closely monitoring the situation to see whether a hike in prices is warranted, it added.

After gaining as much as 9 percent against the dollar in the first two months of 2012, the rupee is back in negative territory and close to its record low of 54.30 against the dollar seen in December.

To be sure, gadget makers won’t be the only ones contemplating hiking prices.

Car makers are probably in the worst bind. In April, car sales grew by their slowest in 10 months- 3.4 percent - yet if the rupee continues to fall, manufacturers will have no choice but to raise prices at least marginally - or lower discounts.

A recent Firstpost story noted that some car makers, faced with sluggish sales, are offering mouth-watering discounts to buyers. Yet, those discounts might not last much longer if the rupee continues its depressing descent.

A fuel price hike also becomes more inevitable. So far, it’s been delayed because of political exigencies. But sooner or later, the price hike has to come. Unfortunately, the longer state-owned oil-marketing companies are forced to wait before hiking prices, the steeper those hikes will be. It won’t be pretty.

A diesel price hike, in particular, will have the effect of boosting prices throughout the economy because diesel is so widely used for transportation and fuel. And remember, that’s on top of a 2 percentage point hike in service and excise taxes announced in the Union Budget in March, which also led to an overall hike in the prices of various services and goods.

Now, pray tell us, who thinks that inflation in India is under control?

The rupee’s fall will affect you even if you’re planning to take a holiday abroad. Everything from room rates to food to shopping in foreign currency just got a little bit more expensive.

Of course, if you’re in India and earning in foreign currency, then go right ahead and pop open a champagne bottle in celebration. Your income in local currency is likely to increase – without any extra effort on your part!