The Indian rupee is doing a London Bridge from the childhood rhyme – falling down, falling down. Naturally, in the wake of its fall, Corporate India is reluctantly readying itself for the inevitable bloodbath that will follow.
There will be a cascading effect on the economy, which is already reeling under unprecedented pressures and needless to say, things can only get worse from here. A weak Rupee will make overseas purchases more expensive, which in plain English means the cost of our petroleum imports will go up. And expensive petroleum products, as everyone knows, means the sounding of the death knell as the higher the petroleum prices rise, the higher will be the prices of everything else.
For salaried people like us, this is really a portend of ominous things to come. The grapevine is already ripe with stories of freezes and pay cuts which had started the day the Rupee had started its southward movement from the cushy levels of 42 or thereabouts. Today, having tested 65 to the Dollar it looks as though it is ready to acquire manic proportions. Yes, many a corporate will default in paying out the salaries and employees, my fellow brethren, already gasping under the pressure of inflation will be pushed to the edge.
In this grim scenario, I am amazed by the imbecilic pronouncements of a section of the so-called experts who are prophesying that companies with sizeable export earnings will make a killing. There cannot be anything further from the fact. For one, both exporters and importers hedge against currency fluctuations and much of the profits accruing due to the falling Rupee is merely on the books as the Dollars were booked, much in advance, at much lower levels. It is true, to a great extent for the importers as well and the fact remains – either way, the actual effect of the swing will not be as pronounced as is being made out.
The second point that needs to be noted is that overseas buyers are no zombies and more often than not are known to be real hard bargainers. They are well aware of the falling Rupee and are rightly insisting that their Indian counterparts part with a substantial part of the profits accruing due to the disparity between the Dollar / Euro and the Rupee. In effect, at times, where the Indian exporter has already got his currencies booked, it is extremely difficult for them to explain the position to skeptical, often downright disbelieving overseas clients. A real double whammy, if you may.
“Buy when there is blood on the streets”, one expert was sermonizing on the television the other day. Yes, on the face at least, some scrips are looking extremely attractive against their historical quotes. But dear friends, here is a word of caution – this is too early in the day and we really do not know whether this is the beginning of a new cycle of decay and destruction. What guarantee is that we are not in the beginning of a new phase that will not make us see the pits?
Fundamentally, the Dollar is regaining its lost sheen. The core sectors of the Indian economy are on the meltdown path. The general elections, just round the corner, are pointing at a scenario with no governable mandate. First the election and then the horse trading that will inevitably follow will call for funds of the dirty type, which in turn will make industrialists cry corruption at the top of their voices (even as they carry the suitcases towards their respective alignments). Policy paralysis will lead to economic rigor mortis and even if the impossible were to happen, it will not be at least two more years before we feel a change in the mood.
What then? Get ready for a long and harsh period of economic darkness. It will be some time before the economic sun is able to dispel the dark clouds of despair.
(Sumit Khetan, a qualified Company Secretary is the CFO of the Concast Group and is an expert in overseas acquisitions and global financing. )