2. CONTENTS
WHY RUPEE HAS BEEN FALLING ?
REASONS FOR INVESTING IN INDIA
IMPACT ON FALL OF RUPEE AGAINST
DOLLAR
WHY THE INDIAN CURRENCY COULD BE
UNDER PRESSURE?
WHY DOLLAR IS MOVING U P AND RUPEE
GOING DOWN?
CONCLUSION

3. WHY RUPEE HAS BEEN FALLING?
It is largely on account of the ongoing Euro zone Crisis,
which has unnerved investors across the global markets. Greece
owes some $400 billion in debt, of which it has to pay $123 billion
by 2014. Rating agency Standards and Poor's rates Greece as 'triple
C', the lowest in the world, leaving the country struggling to pay its
interest costs as interest rates on existing debts rise. As a result, the
Euro weakened and the dollar strengthened. "This had a rub-off
effect on India, leading to a weak Indian rupee," says Tejas Doshi,
VP - Research, Sushil Finance. Apart from the Euro zone worries ,
the high short-term interest rates in India could also keep the rupee
under pressure. This has led to corporate borrowing overseas for
the short term. With no easy solution to the Euro Zone debt crisis,
experts predict the rupee's fall will continue, at least in the short
term.

4. REASONS FOR INVESTING IN INDIA
• Rupee depreciation has eroded the value of NRI investments in
India by nearly 20 per cent in dollar terms. The drop in asset
prices (equities, real estate) is over and above the losses due to
rupee depreciation.
For instance, your mutual fund investments worth Rs 1,00,000
converted into US dollars would have got $1,896 on January 9,
2012, as against $2,270 in August 1, 2011.
• TAXATION ON NRI DEPOSITS
Though interest earned on NRE and FCNR accounts is tax-free in
India, the tax rate for interest income from NRO accounts is 30 per
cent. However, NRIs living in countries with which India has a
Double Taxation Avoidance Agreement (DTAA) can avail of lower
tax rates.
For example, India has a DTA agreement with the US. An NRI based
in that country has to pay only 15 per cent on interest earned on
NRO deposits.

5. IMPACT ON FALL OF
RUPEE AGAINST
DOLLAR:
POSITIVE NEGATIVE
IMPACT IMPACT

6. POSITIVE
IMPACT
 Export-oriented sectors could benefit. Companies in the
information technology (IT) and textile sectors should
benefit from a weak rupee. Rupee depreciation helps IT
companies .
 For every 1% depreciation in the rupee, EBIT margins could
increase by 0.35-0 .4%. This will help protect margins and
give IT companies the much needed cushion against a
slowing US economy. The fall in the rupee is one reason for
investors to own IT stocks again.
 The Indian rupee fell 0.7 per cent against the US dollar at
55.71 on the back of a weak trade data. The Indian rupee
has shed close to 25 per cent value over the past one year.
It is likely to fall further.

7. NEGATIVE
IMPACT
Corporate India is a net borrower of dollar and to that extent
a depreciating rupee impacts its balance sheet adversely.
Companies with foreign debt on their books are badly
impacted. With the rupee depreciating against the dollar,
these companies will need more rupees to repay their loans
in dollar. This will increase their debt burden and lower their
profits. Obviously, investors would do better to stay away
from companies with high foreign debt.
 Bharti Airtel is one such company that has raised money
overseas.
 Then there are oil marketing companies like HPCL. BPCL and
Indian Oil, which could also be negatively impacted. Since
these companies import crude oil, they will end up paying
more rupees for the same dollar value of imports.

8. WHY THE INDIAN CURRENCY
COULD BE UNDER PRESSURE?
 1) Exports falling: Worsening trade deficit is bad news for the rupee as the
demand for US dollars goes up. India’s trade deficit widened to $ 15.5bn in
July 2012. This is significantly higher than $ 10.3bn reported in June 2012.
 2) Current account deficit could rise: India’s current account deficit is
higher than expected. This occurs when import of goods and services exceed
their exports. A higher current account deficit weakens the currency.
 3) Dependence on foreign flows: India would need strong foreign capital
flows to finance the current account deficit. However, chances of foreign
investors allocating more money to India are poor.
 4) Fiscal deficit: A fiscal deficit occurs when governments spend more than
they earn through taxes and other sources of income. It is important for
countries to keep it under control. A large fiscal deficit forces central banks to
print more money and stoke inflation. This further hurts the rupee value.
 5) Growth slows: India needs a strong growth rate to sustain high spending
and boost exports. However, the global outlook for exports is not positive.
Most analysts expect India to grow at less than 6 per cent in 2012-13. At the
same time, a weak monsoon could push up food prices.

9. Why dollar is moving up and rupee is
going down?
First Reason Second Reason
 Dollar is in Demand BRIC countries  Commodity prices are crashing at
like India, so a huge percentage of international level. Importers are
investment in India is from outside trying to accumulate dollars, as
the country, especially from US but they have to pay in terms of
due to recession in US, big dollars and at the end demand is
institutions are collapsing. They are increasing against the rupee. This
suffering huge losses in their has not happened yet due to lack
country. So to recover losses, they of confidence in all kind of
are pulling out their investments markets. Exporters have a very
from India. Due to this pulling out few orders from outside
of investment by these big countries, so there is no matter
companies from India, demand of of converting dollar into rupee
dollar is raising up and rupee is thereby decreasing demand for
depreciating. rupee.

10. CONCLUSION
The value of the rupee in terms of dollars will depend over
time on the erosion of its value in terms of purchasing power
internally. If inflation has been at say, 7 percent, the rupee will
have to fall to that extent unless the importing countries are
themselves victims of inflation. That is not the case. Hence,
the rupee has fallen the most compared to other currencies
because we had nearly the highest inflation. Eventually, the
rupee will stabilize, barring short-term disturbances, after
correcting the loss in its domestic purchasing power. The rupee
will not go back to 45 to the dollar; at best it will stabilize at
51-52.