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With higher income levels, people don't feel Rs pinch so much

The rupee dropped to its all-time low last week, panicking policymakers, but it is still worth a lot more than it was 40 years ago, when it was first pegged to the US dollar. Mahua Venkatesh reports. More bang to the buck

business Updated: Dec 19, 2011 01:13 IST
Mahua Venkatesh

The rupee dropped to its all-time low last week, panicking policymakers, but it is still worth a lot more than it was 40 years ago, when it was first pegged to the US dollar.

Thanks to a dramatic rise in average income levels, and rising purchasing power parity, the man on the street can buy more per buck.

For instance, if you were to travel abroad, it would cost you about Rs 27,000 to buy $500. Not a big hole in the pocket, perhaps, for the 1.2 crore Indians who fly overseas per year on vacations these days.

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In 1971, when the rupee was 7.58 against a dollar, the $500 would have cost Rs 3,850. Paltry? But the average monthly salary of senior bank executives was Rs 4,000 those days. Today, it is over 60 times higher. That is how drastically the income levels have changed.

"While on the surface, it looks as if the rupee has devalued to a level which can fetch you little, other economic factors such as rise in income and PPP point to the fact that a rupee still can fetch you much more," an economist with a private sector bank, who did not wish to be identified said.

During the last 12 months, the Indian rupee's exchange rate depreciated 14.17% against the US dollar. Historically, from 1973 until 2011 the dollar-rupee exchange has averaged 30.34.

India's GDP per capita adjusted by PPP from 1980 to 2010 averaged $1,254.03.

"The rupee has devalued per dollar yet compared to what we were in 1971 when income levels were low, we are fairly comfortable and still can buy a lot more today," Soumya Kanti Ghosh, director and head, Economics & Research, Federation of Indian Chambers of Commerce and Industry told Hindustan Times.

To an extent high inflation also indicates an increase in demand, an analyst said. The current price hike is primarily due to the supply-side mismanagement though, he clarified.