Why is the rupee falling?
The price of a currency is determined by its demand. At present, demand for dollar is rising sharply as foreign institutional investors (FIIs) are pulling out of stock markets, taking back their investments in dollars, due to worries on growth and the European situation. Indian oil firms also buy dollars to pay for their crude oil imports.
Foreign exchange dealers expect the rupee to fall further. A foreign degree or an overseas vacation will cost more. Expect prices of manufactured goods and food to rise too. Cars could turn pricier as steel imports turns costly.
What about oil prices?India meets 70% of its crude oil needs through imports. Any slide in the rupee or spike in world crude oil prices send the cost of oil up. Higher costs mean higher retail fuel price. But oil companies cannot increase the prices of all fuels, so their under-recoveries (losses on selling fuels below cost price) rise.
What is the exact impact?
Every one rupee gain in the value of the US dollar costs these companies Rs 8,000 crore, according to petroleum secretary GC Chaturvedi.
How do fuel prices affect us?
Petrol and jet fuel prices are not controlled by the government hence they are likely to go up immediately. But an increase in the under-recoveries of oil companies means a higher subsidy outgo for the government.
What is the exact extent of under-recoveries?
The under recoveries of the oil companies are expected to touch Rs 1,30,000 crore by the end of the current financial year.