Why the Rupee Could Become Weaker and Impact on Everyone's Finances

Now that the third quarter current account deficit figures of 4.3 per cent of GDP is out a few things are clear to me. We will see a situation in the future where the gap between growth of imports and exports will continue to be yawning. You don't need to be an expert to know that the top items in our imports list are things that we can't do without. I am talking about petroleum and edible oils. With rising international oil prices being the single most important threat to the global economy, especially India, the import bill could go into orbit any moment whether it is tensions in areas such as Iran or another round of currency pumping by some central banks. In the past, the huge amount of cash pumped by central banks found its way to commodities such as crude oil, pushing up their prices. On the exports side, things don't look too great with global economy showing weakness. In the US, joblessness is on the decline but the rate of fall is not brisk enough. We know how things are in Europe and China is now talking about far lower rate of growth. The one thing that government could try and do was checking gold imports which it tried to do in the Budget. But then, jewellers had other ideas with their strike.
Given this situation, one can expect people to seek more dollars and than the rupee or the rupee's value to weaken. This in turn will only mean more inflationary pressures and more stubborn inflation. Less likely will be a cut in interest rates and greater impact on the bottomlines of companies impacting their stock prices. Of course, this will also impact the investments in equity mutual funds and growth funds of unit linked insurance plans (Ulips) this year. Clearly, it looks as if the new financial year of 2012-13 will be fairly challenging.