Rupee slips below 50

Rupee slips below 50

You could have bought a dollar for Rs39.36 a year ago; the Indian currency now trades at 50.15 against the US currency.

The sharp fall in the value of the rupee has caught large parts of the economy on the wrong foot—software and other exporters who sold their dollars in the forward market for far less, other companies that have bought currency options that will now lose them money, and then there are the firms that have liberally borrowed abroad to finance both their regular business as well as acquisitions. They will need far more rupees to pay back those dollars than initially assumed.

Many countries can say that the decline in the value of their currency is because money is merely a mirror image of the mad rush to buy dollars, as investors flee to what they believe is a safe haven. But that is likely to end once these investors face the reality that the US is deep in debt and has deficits that could cripple it.

India may not be that lucky. Our massive current account deficit that has been financed by volatile capital flows is a harsh reality. The road ahead for the rupee may be a rough one.